“Tax Cuts and Jobs Act” Fueling the Economy and Small Business Growth

By at 3 July, 2018, 9:24 am

   6th Month Celebration and Progress Report

By Karen Kerrigan-

On June 29, I had the opportunity to attend a White House celebration to mark the 6th month anniversary of the “Tax Cuts and Jobs Act.”  President Trump spoke about the strength of the economy and how tax relief was fueling investment, wage growth, job growth and American confidence across the board. He featured several families who are benefitting from tax relief, including a small business owner, and they detailed how tax cuts are helping them achieve their goals and dreams.

At a June 20, Financial Services Committee congressional hearing I detailed many of these positive indicators where I reviewed how tax relief and other key policies – for example, the big change in regulatory policy – are driving small business growth.  All indicators point to renewed growth, optimism and strength, which is all positive for the future of entrepreneurship and the vitality of our small business sector.

As I noted in my written testimony and opening statement:

“Tax Cuts and Jobs Act” Fueling Confidence and Growth: As we cross the six-month point of the newly implemented “Tax Cuts and Jobs Act,” many indicators find that its effect has been very positive for small businesses. The new tax law is helping to fuel momentum in the economy, improve consumer confidence, and enable job creation, higher wages and more business investment. The combination of regulatory relief and certainty, along with tax relief, is a powerful policy mix that has markedly improved the business environment, revenues and sales for small businesses, and their growth opportunities.”

Small Businesses Are Confident: The significant uptick in small business confidence that followed the 2016 elections continues to this day. Various surveys report comparable findings: small business confidence is exceptionally high.

● According to the second quarter 2018 Wells Fargo/Gallup Small Business Index survey, “small-business owners’ optimism continues to be strong — near a 10-year high.”

● The NFIB’s Small Business Optimism Index for May 2018 reported that optimism reached its second highest level in the organization’s 45-year history.

● The Spring 2018 Bank of America Business Advantage Small Business Report (released April 26, 2018) reported that “confidence in the economy – both at the national and local levels – is the highest it’s been since 2015 and the second-highest in the history of the report.”

An important take-a-way from these various reports is that small business confidence has stayed strong and consistent over a year and a half, which is producing positive activity from this sector – such as expansion, hiring, and investment – all of which are critical for innovation, our economy and its competitiveness.

Such confidence has translated into actions by small businesses that help build local communities and job opportunities. For example, NFIB’s May 2018 Index showed that “compensation increases hit a 45-year high at a record net 35 percent.”  The Spring 2018 Bank of America (BoA) Report aligns with the NFIB’s finding in terms of how the growing economy, along with tax relief, are providing a boost to small businesses and allowing small firms to better compete in the economy. In fact, entrepreneurs surveyed in the BoA report identified changes to the tax code as a “game-changer” for the health of their businesses. As noted within the report:

● Fifty-eight percent cite the new tax policy as a ‘game-changer’ for small businesses overall, and 63 percent say it’s made them more optimistic about their own business’ outlook. 

● Thirty-seven percent have altered their 2018 business plans as a result of the new code. – 34% say it will significantly alter their business trajectory. 

● Seventy-one percent expect to receive savings resulting from the new tax policy, and many plan to use these funds to fuel growth, including investing back into their business (37%), awarding raises and bonuses to employees (21%) and hiring more employees (14%), expand operations (14%), pay off a loan (12%), make capital improvements (12%). 

LendingTree survey (May 2018) also found that small businesses expect to benefit from the new tax law, with 65% responding that they plan to see savings. According to the survey, 35% will pay down debt, 15% plan to pass tax savings onto employees thru increased wages and benefits, 9% will invest more in the business, and 7% will hire more employees. Each and all of these actions taken by small business owners are important to the health and viability of their firms, as well as for the strength of the economy.

Obviously, extra capital for small businesses provides these firms with the resources they need to retain and compete for human capital – a growing challenge for many businesses, but especially small businesses. Tax savings and a growing economy (more revenues) are helping small businesses in this regard, as noted by each of the surveys highlighted in my testimony.  While some small businesses are boosting wages immediately due to tax relief, a significant number of others plan to do so over the coming year. For example, the Wells Fargo/Gallup Small Business Index (Q2 2018) finds “59% of owners say they are very or somewhat likely to offer salary or wage increases to their workers over the next 12 months, and 52% say they are likely to offer bonuses or new benefits.”

President Trump on the 6th Month Anniversary of the “Tax Cuts and Jobs Act.” Click the photo above to watch the President’s full remarks.

Consumer Confidence Boosting Small Business Growth: According to The Conference Board Consumer Confidence Index, consumer confidence rose in May to a three-month high, and is the best in 17 years: “Overall, confidence levels remain at historically strong levels and should continue to support solid consumer spending in the near-term.”  Confident consumers are active consumers, and small businesses are benefitting from their confidence and buying activity.

In terms of retail sales, the Census Bureau’s report on May’s data showed an increase at double the expected rate, registering at 0.8% (versus an expected 0.4%). It is also worth noting that 0.8 percent growth is double the average monthly growth rate looking at data back to 1992.  Over the past year, total retail sales were up 5.9 percent, and 6.4 percent excluding autos, 4.9 percent excluding gasoline, and 5.1 percent excluding both autos and gas.

Confidence about the future of the economy, the positive job outlook, tax cuts benefitting families and individuals, and wage increases generated by small, mid-size and large businesses are all having an impact on consumer activity. As noted by the NFIB May 2018 Index, small businesses are the beneficiaries of this activity as sales trends are at the highest level since 1995.

SBE Council members are reporting much stronger activity from their larger corporate clients and general B2B activity as well.  Business investment has picked up markedly, which is a dramatic departure from the “investment gap” that the economy experienced from the great recession throughout the recovery period. This “gap” was substantial as noted by my organization’s “Gap Analysis” series published during the course of 2016, which reported that “Real gross private domestic investment grew at an average annual rate of 1.8 percent from 2007 to 2016, compared to the 4.9 percent average growth rate from 1956 to 2016.” This difference left a real gross private domestic investment gap of at least $1.4 trillion (in 2009 dollars) in 2016.

Thankfully, business investment is on the rise. In the second estimate of first quarter GDP released by the U.S. Bureau of Economic Analysis on May 30, fixed nonresidential investment growth was revised up from an original estimate of 6.1 percent to 9.2 percent, including structures investment growth upgraded from 12.3 percent to 14.2 percent, equipment from 4.7 percent to 5.5 percent, and intellectual property products from 3.6 percent to 10.9 percent. Such investment serves as a positive for future economic growth.

It is also very encouraging to see money returning (repatriated) to the United States from abroad, which is capital that can be re-deployed for investment purposes. Business spending by large companies significantly benefits small business in their supply chains. In fact, a September 2010 Business Roundtable report (Mutual Benefits, Shared Growth: Small and Large Companies Working Together) found that “the U.S.-parent operations of the typical U.S. multinational buys goods and services from more than 6,000 American small businesses; buys a total of more than $3 billion in inputs from these small-business suppliers; and relies on these small-business suppliers for more than 24% of its total input purchases.” The Business Roundtable estimates that “U.S. parents of U.S. multinationals purchase an estimated $1.52 trillion in intermediate inputs from U.S. small businesses, which is about 12.3% of their total sales.”

This fertile environment consisting of a better business environment, strong consumer confidence, and improved revenues and sales for small businesses means entrepreneurs have a very favorable outlook moving forward. The recent BOA report for the second quarter of 2018 reflects that buoyancy:

● Fifty-four percent expect the national economy will improve over the next 12 months (vs. 52 percent in spring 2017, 29 percent in spring 2016 and 48 percent in spring 2015). 

● Sixty percent believe their revenue will increase in 2018 (vs. 48 percent in spring 2017 and 51 percent in spring 2016).

● Sixty percent plan to grow their business over the next five years (vs. 56 percent in spring 2017 and 55 percent in spring 2016). 

● Twenty-two percent plan to hire (vs. 18 percent in spring 2017 and 22 percent in spring 2016). 

There are many solid signs in the economy for entrepreneurs and small businesses. The policy ecosystem and positive business environment are helping to strengthen small firms and provide growth opportunities.

Read SBA Administrator Linda McMahon’s Op-ed “Nurturing a Small Business Boon.”

As President Trump pointed out at the White House celebration, regulatory relief and reform are also playing a key role in the growing economy.  I fully agree, as business owners and entrepreneurs are benefitting from a stable regulatory environment – that is, they can fully focus on building their businesses and take risks without worrying about the next big regulation (and its costs) coming out of Washington, D.C.

Obviously there is unfinished policy business. SBE Council is very focused on access to capital, where we are working with our allies in Congress and the business community to advance a “JOBS Act 3.0”  – a package of bipartisan bills to strengthen capital markets and capital formation, which will lead to healthy capital flow to entrepreneurs and small businesses.

Health care reform is still very much on our radar screen, as we continue to support regulatory changes and legislation in the Congress to disrupt the nightmare of every increasing costs and diminishing choices that continue to burden many small businesses, their employees and the self-employed.

In addition, we are now making our voice heard on the Tax Cuts and Jobs Act 2.0 initiative to ensure there are more benefits, clarity and simplicity for small businesses when it comes to our tax code.

Finally, we continue to voice the concerns of small businesses on trade policy and how tariffs and retaliatory actions by our trading partners is bringing back that feeling of uncertainty, which in the end undermines confidence and economic growth moving forward.

The economy is getting stronger with the help of sound policies. A better policy environment means that entrepreneurs are taking more risks to expand their businesses, hiring more, investing more in their communities and helping to power the economy forward.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council. 

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