House Minority Leader Nancy Pelosi (D-Calif.) recently said the benefits and bonuses employees received because of H.R. 1, the Tax Cuts and Jobs Act, are “pathetic” and mere “crumbs.”
That comment reveals an entirely Wall Street mindset. It makes it clear that many Washington lawmakers don’t understand how the 99 percent of American businesses that are privately-held — or the more than 95 percent that aren’t C-Corporations — make decisions.
Because of tax reform, I have more capital. As I explained recently on Fox Business, that means the companies I own and invest in — all non-corporate and privately-held — have more capital. They now have the means to develop new opportunities, and I’ll need people to help me with that development. Because of this tax cut, I’ll promote current employees, hire more and do everything I can to keep my talent. It’s called giving up governance. I get to focus more on how to expand my businesses because now I have the means to scale them.
This process is how small businesses become medium-sized and medium-sized companies grow into major employers. But it’s only possible when entrepreneurs are less worried about their bank balances.
The additional capital flowing from this tax cut won’t help only my employees. One company in which I’m invested will build a laboratory to test new technology to serve the construction industry. We’re going to increase investment to drive growth in that entire sector. That’s what American entrepreneurs do. We take risks and invest in the future.
This tax cut has made it a lot easier to do that job.
In my companies, I estimate that 70 percent of the tax cut will end up directly in workers’ pockets. Twenty five percent will go toward new investments and initiatives and just five percent will fall to existing ownership.
Privately-held small businesses like mine are primed for expansion, but so are publicly-held, corporate ones.
Days before Congress passed tax reform, the Federal Reserve reported U.S. corporations are sitting on $2.4 trillion in reserves. Washington lawmakers, who seem to have no problem with $20 trillion in debt and who prize spending over saving, don’t think this is good news.
It is. It means that, since the 2008 financial crisis, U.S. corporations have gotten leaner and improved corporate governance. When the next crisis hits, as it inevitably will, fewer companies will have to let go of fewer workers and taxpayers won’t be asked for bailouts.
The Fed figures prove this tax cut is coming at the right time. They prove all U.S. businesses can put the capital they’ll save from this tax cut to work.
Last month, the Federal Reserve Bank of Richmond asked employers about their future hiring plans. In similar surveys from 2014 to 2016, the percentage of company leaders who said they were looking to enhance their workforce was relatively flat, about 40 percent. This year, 53 percent said they plan to increase employment. A mere eight percent plan to cut their workforce, the smallest percentage in four years. A survey by the outplacement firm Challenger Gray & Christmas reached a similar conclusion, finding 62 percent of firms plan to hire in 2018, compared to the 42 percent that did in 2017.
Rep. Pelosi’s “crumbs” comment was a mere synonym for “trickle-down economics,” a political slogan coined by vaudeville performer Will Rogers.
Slogans cannot capture how the American economy works, or how its entrepreneurs make hiring and investment decisions. Business owners value our workforce. We understand we couldn’t succeed without the grit, ingenuity, and talent of the men and women on our payroll. We want everyone to move up.
Tax cuts, H.R. 1 included, aren’t crumbs or trickle down. They’re expansion economics. They’re opportunity economics. In 1962, President John F. Kennedy famously promised that his tax plan would lift all boats. He knew if entrepreneurs had more capital, all Americans would get wealthier. Wages rose and growth exploded after his final tax bill was signed into law in 1964.
It’s going to happen again, just wait. While H.R. 1 isn’t perfect, and will need to be combined with other major policy initiatives and reform, this bill will help uncork the new business investment and hiring we need to rebuild the American middle class.
Todd Hitt is an investor and the CEO of Kiddar Capital. Follow him on Twitter @ToddHitt