Will Trump Admin Tax Cuts Lead to More Hiring, Increased Wages? Not According to UVA Darden CFO Roundtable Members

By Laura Hennessey Martens

How will President Donald Trump’s tax stimulus package impact companies and broader society? More specifically, will these tax changes lead to the job growth and higher wages touted by the administration?

CFOs from leading publicly traded and private equity-held companies based in the Washington, D.C., region shared their insights on those questions as part of the Top-of-Mind topic — It’s All About the Stimulus — at the Strategic CFO Roundtable held 4 January at the offices of Sands Capital Management in Rosslyn, Virginia. The roundtable is a select peer-to-peer forum hosted by the University of Virginia Darden School of Business Institute for Business in Society.

While discussing their outlooks on the overall U.S. economy, the roundtable members reported strong levels of optimism. However, when asked if the new tax changes would result in more hiring or increased wages, one CFO said, “In our business, increased hiring or wages would never have been a natural consequence of lower taxes. It is usually going to benefit the owners, not free-up dollars to spend more.”

“Compensation is market-based, right?” another member said. “So, we will change compensation if we feel like our attrition rates are increasing, if our offer and acceptance rates are decreasing, or if we can’t get the people we need. Supply and demand of personnel is its own market.”

Although most believed the impact on job and wage growth would be negligible, many of the CFOs thought mergers and acquisitions could be one area to tick up because of the tax stimulus package. “I could see a lot more M&A happening as a result of tax reform,” said another roundtable member. “If we’re trying to find growth, one of the ways to grow is inorganically. And if I have extra cash, I’m not going to be hiring for jobs, but if I could buy a business that’s already growing, I could deploy it there.”

As the discussion shifted from corporate behavior to citizens’ reactions, the CFOs held similar expectations for a lack of economic effects from the recent tax changes.

“There’s all of this uncertainty and skepticism as well,” said another roundtable member.

“Does this tax bill kick the economy into a different place?” asked another CFO. “It’s back to the forecast, which is hopefully somewhere in the middle. But the uncertainty will overcome everything else and the tax changes won’t really matter.”

The member added, “If the psyche can change, then the tax reforms will probably end up being a lot better, and it will pay for itself. But I think it’s more about psyche change than about forecast or any pile of assumptions one could make right now.”

After gauging the CFOs’ reactions to the tax changes, Professor Ken Eades proposed that the tax bill would be judged as successful if it stimulated a three-phase growth story, with each phase being a “domino” that needs to fall to ignite the next phase:

  • Domino 1: Middle income working families receive a material tax break going forward.
  • Domino 2: A substantial part of tax savings translates to higher consumption, which presumes there is pent-up consumer demand, versus increased savings or lowering household debt.
  • Domino 3: Increased consumption pressures corporate production, benefiting corporations with increased revenues and individual sectors with new jobs and upward pressure on wages.

Additional insights from the latest CFO Roundtable are available in the report, “Views from the C-Suite.” The next roundtable will convene in May 2018.

Darden Professor Ken Eades and The ILEX Group Managing Principal and General Counsel Jane-Scott Cantus, an Institute for Business in Society Fellow, founded the Strategic CFO Roundtable in 2008. In 2013, the Strategic CFO Roundtable was adopted as a key initiative of the Darden School’s Institute for Business in Society.

About the Darden Institute for Business in Society Strategic CFO Roundtable

The Darden Institute for Business in Society Strategic CFO Roundtable is an invitation-only peer-to-peer forum for leading chief financial officers in the Washington, D.C. metropolitan area founded in 2008. These roundtables provide a confidential forum for corporate financial leaders representing the varied industries of the Washington, D.C. metropolitan area to discuss and debate global and U.S. economies as well as corporate financial strategies and performance. Each session focuses on a Top of Mind (ToM) topic, a specific issue of current importance to the members.

About the University of Virginia Darden School of Business

The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D., MSBA and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.


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