What Will Small Business Owners Use Their Tax Bill Savings For?
It’s no secret that the many businesses are very much in favor of the recently passed Tax Cuts & Jobs Act. After all, the bill slashes the corporate tax rate in the U.S. to 21% from its previous 35%. As a result we’ve seen many big businesses doling out bonuses, raises, and other perks to their employees. But what about small businesses?
A recent CNBC/SurveyMonkey Small Business Survey asked entrepreneurs what they plan to do with their tax cut funds. While the survey was conducted in Q4 before the bill officially passed through Congress, one-third of businesses at the time said they planned to use their savings to pay down debt, making that the most popular answer. The next most popular response (with 22%) was to invest in new equipment and technologies followed by repairing existing facilities and equipment at 12%. Trailing behind was “raise employees salaries,” which only 10% of respondents said they planned to do.
Those results stand in contrast to what the public at large believe small business should be doing with their tax bill savings. In a survey conducted in Q1, 37% of those polled said they wanted to see small business reward their workers with higher wages following the tax bill’s passage. That response was easily the most popular among the general public surveyed.
As CNBC notes, there’s fair reasoning for this disconnect. For one small business owners may not feel pressure from their staff to raise wages, due in part to how few employees they have. In fact 85% of small business have fewer than 20 employees and 61% have staffs smaller than five people. Additionally CNBC’s past surveys have consistently found business owners ranking cost of capital as a more critical issue than the cost of labor. As a result, while outside observers might feel workers deserve a raise, it might not be as simple as that.
Considering that this survey was conducted before the tax bill took effect, it will be interesting to revisit once the savings actually reach business owners’ bank accounts. Specifically one has to wonder whether the headline-grabbing gestures of the big guys might lead smaller players to make similar overtures to their teams. Finally it should be noted that, while business owners may be earmarking their tax bill initial savings for non-employee uses, these rate reductions will be in place for the foreseeable future. With that in mind, employees of small businesses may just get those raises after all.