MacIver News Service | April 29, 2019
By M.D. Kittle
MADISON, Wis. — The booming economy of 2019 continues to be fueled in large part by the GOP Tax Cuts and Jobs Act of 2017.
And Badger State companies and their employees continue to reap the rewards of tax relief.
U.S. gross domestic product (GDP), according to initial reports from the U.S. Commerce Department, grew by a whopping 3.2 percent in the first quarter, crushing estimates and soothing worries of a looming economic slowdown.
Companies like Pewaukee-based Trico Corp. have much to do with the U.S. economy’s impressive expansion. Bob Jung, CEO of the century-old industrial lubricants business, will tell you that the $1.5 billion tax relief package passed by the Republican-controlled Congress and signed into law by President Trump continues to benefit businesses like his — and Trico’s employees.
A year ago, Jung confirmed that, thanks to the tax cuts, Trico would provide $650 bonuses to its workforce, and the employer planned to increase contributions to employee 401(k) accounts. The company also expected to hire more full-time workers. Jung said Trico paid out those additional benefits earlier this year.
The lower tax rates for S corporations like Trico have made a big difference to the bottom line. But the reform package also included beneficial accounting changes. Jung’s company was able to change from accrual to cash accounting, allowing Trico to recognize revenue and expenses only when money changes hands, not when revenue is earned and expenses are billed (but not paid) under accrual accounting.
Jung said the tax cuts have helped the company expand products and services to customers. Trico sales are up 10 percent on the year, he said.
“Also, what may not be as immediate is (the tax savings) have allowed us to bank some cash,” the CEO said. “It’s a fact that there are going to be funds there for us to be able to put toward capital expenditures when the time is right, perhaps in the fourth quarter.”
Such sentiment bodes well for economic expansion ahead.
Economists’ consensus had pegged GDP growth at about 2.5 percent to start the year. Many are upping their full-year estimates following the latest numbers on top of a healthy 2.9 percent growth rate in 2018. On average, the U.S. economy has added 180,000 jobs in the first three months of the year, while the major markets continue to break records.
Grover Norquist, president and founder of Americans for Tax Reform, said the GOP tax reforms were designed to ramp up economic growth over the next three to four years. When you cut corporate income tax rates from 35 percent to 21 percent, however, that frees up a lot of capital to reinvest, Norquist said. And U.S. companies have done just that.
Corporate America brought back nearly $670 billion in offshore profits to the U.S. last year, according to the U.S. Commerce Department. That’s a considerable amount, even as Bloomberg and other media outlets chortled that it was a far cry from the $4 trillion President Trump predicted would return post-tax reform.
“We saw the growth immediately from the first year, so imagine what will happen over the next two, three, four or five, six years (with) the most powerful, pro-growth, pro-wage increase” tax reform law, Norquist told MacIver News Service in a recent edition of the MacIver NewsMakers podcast.
U.S. businesses continue to pass along their tax savings to employees, to consumers, and to their communities.
Americans for Tax Reform has tracked some 800 examples of new hires, pay raises, benefit increases, bonuses, facilities expansions, and utility rate reductions directly related to the tax cut package. This incomplete list, which only notes firms that have made public announcements, includes the largest corporations to the smallest shops — including dozens of Badger State companies, like Trico.
And Madison-based Musicnotes, Inc.
Last year, the worldwide leader in digital sheet music, announced it was giving 3 percent salary increases to its 55 employees, thanks to the corporate tax cuts. Tim Reiland, the company’s executive chairman, said Musicnotes intended to expand its workforce.
It has done that and more.
“This is a really positive story for us and it continues,” Reiland told MacIver News last week. “We definitely benefitted from the tax reform and we have passed some of that along and continue to do that.”
Musicnotes has added six positions, boosted salaries by an average of 10 percent, and expanded office space by about 15 percent since the beginning of 2018, Reiland said. He calls it the “virtuous circle.”
A lot of the company’s growth has to do with its products and the people behind them, Reiland said, but a significantly lower corporate tax rate certainly helps.
“It’s very real. It’s cash flow. That’s what you need to grow a business,” he said. “It has been a significant benefit to us, and we’ve shared, we’ve rewarded, we’ve plowed back and we continue to do that.”
Beyond business expansion and employee bonuses, a lot of companies have used a portion of their tax savings to benefit their communities. Case in point, CUNA Mutual Group. The Madison-based mutual insurance provider was able to make the largest contribution ever — $20 million — to its philanthropic foundation, thanks in part to tax reform.
“The reform benefit is helping us,” said CUNA Mutual spokesman Phil Tschudy. “The reason we did this is so we could ensure that our foundation is funded for years to come, regardless of economic situations.” The foundation turned 50 this year.
Consumers, too, continue to benefit from the 2017 tax reform law.
State regulators announced last year that WE Energies’ electric customers would receive a one-time credit in July and a slight decrease in rates “from a portion of the savings from the company’s lower federal corporate tax rate.” The Milwaukee utility’s customers received a combined $374 million in refunds, through bill credits, in 2018, according to WE Energies spokesman Brendan Conway.
“We have also lowered the amount of debt customers would have had to repay us $47.2 million,” he said in an email.
On top of that, the utility’s recent filing with the state Public Service Commission proposes to use an additional $111.3 million in tax savings to lower customer costs in 2020 and 2021.
Democrats, led by Speaker of the House Nancy Pelosi and Senate Minority Leader Chuck Schumer called the benefits delivered by the tax cuts “crumbs.” But employers and workers nationwide have been able to keep a lot more bread — and impressive economic growth shows the power unleashed when taxpayers are freed from the burdens of taxation.