Thanks in part of our 24-hour news cycle, we have heard time and time again that the new tax bill would be the answer. The answer to the question of how to ensure American businesses become more competitive that is. Everyone hoped that would be the case, not just fake news. Now, no one is a believer more so than retailers, who are the winners under the just-signed tax reform. The bill seeks to boost the US economy by benefitting business, workers, and consumers.
Riding high on maximizing holiday sales and profits, retailers have yet another reason to celebrate and look forward to the future. Per Business Wire, Matthew Shay, the National Retail Federation (NRF) President and CEO said of the new tax initiative,
“Lower taxes will help us grow our business and offer our customers better value. But the biggest benefit for retailers will come as lower taxes and increased global competitiveness help U.S companies throughout the economy put more Americans to work and pay them higher wages. Consumers with jobs and money in their pockets benefit the entire economy, including retailers and every job behind every product on our shelves.”
The market has experienced a nice move upward since the beginning of the holiday season and has continued into 2018, thanks to the global economy looking up. Retailers have been greeted with increased sales and the economy has witnessed a rise in income, job growth, disposable income growth of 3.5% year-on-year. In addition, there has been an increase in credit card use and a decrease in saving. Gad Levanon, chief economist, North America, for The Conference Board, attributes the recent gains to rising consumer confidence as well as an increase in the ability and willingness of consumers to well, consume.
However, concerns have been raised about the long-term sustainability of such trends, how the new tax reform will impact businesses, and how retailers can plan for looming shifts in US demographics. Managing Director and Senior Analyst at Oppenheimer & Co, Equity Research, Brian Nagel, addressed this saying
“In 2018 there will be an additional boost to the U.S. economy and consumption in particular, and that is the tax cut. There are questions about the long-term impact of the tax cut on the U.S. economy and consumption, but for the short run in 2018 and perhaps even in 2019, the impact will be positive.”
Cutting corporate tax rate will benefit both small and large businesses in numerous ways. Nagel said that “Domestic retail is one of the highest taxed in the economy. Most of our retailers are paying an effective tax rate in the upper 30s, call it 38 percent, and with the new corporate tax rate, it’ll take it down to 25.” This should enable multinational corporations like Costco, for instance, to save more than $400 million a year.
Already, companies are looking at how they can spend some of the extra money. For one, Walmart announced that it would increase its minimum wage to $11 per hour. Also, the company said it intends to provide extra parental and adoption benefits to its workers. On their part, Apple and Kroger executives have made statements suggesting they would likely hire more workers. For a vast majority of companies, however, the additional money would probably go to shareholders in form of higher dividends.