January 2018 Blog – The Responsibility behind Lower Taxes
Just before Christmas, Congress heralded a new tax law as its gift to all Americans. And, a financial gift it truly will be. Except for a few who have claimed complex tax deductions in the past, the great majority of Americans will enjoy tax rates that will lower their federal income tax responsibility in 2018. The word choice of “responsibility” is not an error. I pay federal taxes as a responsibility for the services I expect my government to provide. Yet, in the zeal to give this gift to all Americans -- and especially corporations -- has a responsible Congress mentioned how it will pay for this magnificent gift? More efficient operations? Reduced services? Elimination of wasteful spending? If none of the above, then the ultimate cost of this gift is going to be born by a generation not even voting yet. It is perhaps wise to consider them first as we decide what to do with windfall funds.
The most dramatic tax cut comes in the form of a 35% 21% corporate tax reduction. For medium and large corporations this is nothing short of a windfall. Perhaps a little lost in all the holiday celebrations, you may have heard about some corporations expressing their gratitude to Congress by promising to give back a portion of this windfall as cash bonuses to its employees. The gesture is respectable, but does it measure up to a much higher bar of being responsible? greed) for financial gain. As the old proverb states, with greater financial freedom comes greater responsibility.
I believe America’s founding fathers never dreamed of a federal government of the immense size as we know it today. Certainly, they did not envision an institution that has created so much dependency of its citizens. But before we demand a smaller federal government, we need to strategically think how and then actually assume the personal and corporate responsibility to fund some of our present and our future societal requirements.
The high bar is to start with a concept of investing 100% of the extra income into people. It is estimated that the average person will realize $700-900 in additional cash flow while those in the highest 1% income bracket will enjoy an extra $37,000 in 2018. In my family, we want to take every additional dollar and invest it into education for our children. The more we fund, the less student (federal) loans they have to assume upon receiving their college degrees. Other families we know are investing in start-up businesses involving family members. This is true investment into human development.
Corporations who decide to throw only token amounts of their excess profits back to employees as a one-time cash bonus need to think bigger and bolder. America has given you a windfall, what does this country expect you to do with these additional funds? The temptation may be to pay down debt or invest in international expansion or pay your share-holders a greater dividend. No doubt these are all smart business decisions, but it comes short of what the American people would consider the purpose of the tax relief. If every voting American had the ability to specify how the additional funds would be invested by corporations, I believe they would want our corporations to invest 100% of the excess into America’s future.
What the average citizen expects is for corporations to prop up investment into human capital development. First on my list is investment into employee training so that the tide of automation does not constantly remove people from the workplace but train them to manage the emerging technologies. Other ideas include a reversal in the year-by-year decline of benefits, to fully fund pension plans, and provide grants to educational institutions for research that includes paying students (not just universities) for their intellectual contributions. Most of all, corporations can contribute the time of some of its best thinkers. America has many problems that politicians cannot solve. Providing sabbaticals to talented employees to pursue solutions may lead to surprising ideas. At the least, we would get some ideas!
My hope is that 2018 will be less of token cash-back offers from corporations, and more robust long-term investment activities that truly commits all of the excess being realized. As with my family, it is decision we must make before the dollars are in our hands less we fall to the temptation of satisfying our short-term desire for financial gain. As the old proverb states, with greater financial freedom comes greater responsibility.