The strongest and most impactful ingredient in the tax reform laws instituted by President Donald Trump late in 2017 was the change in the corporate tax rate, from 35 percent to 21 percent. President Trump said the unusually high former rate dissuaded corporate innovation and product advancement and chased companies to foreign borders to avoid the tax.
Like the effects of new tax laws intended to impact personal tax liabilities, the effect of the new corporate tax law will not be fully understood for many months, although immediate impact was felt in the stock market and on business news reports, which shared stories of companies announcing employee bonuses to reflect a portion of the savings the corporations believed were coming their way with a much lower tax rate.
Most people these days like to form immediate opinions on matters that previously might take months to understand. That is true with investors surveyed by Spectrem for their new study Politics, Taxes and Investors’ Changing Attitudes, which asked investors to discuss their feelings towards the new tax laws and the current state of politics in America.
Spectrem surveys investors with a net worth between $100,000 (not including the value of their primary residence), to $25 million, and then segments those investors based on numerous factors including age, wealth level, gender and occupation.
The questions regarding the corporate tax change were expected to be favorably received among those investors who are Senior Corporate Executives or Managers, and it was. But investors from other occupations were less enthusiastic, and many segments reported concerns over how the new corporate tax law would impact investors who are not in the corporate suites.
All investors were asked to rate the decrease in the corporate tax rate on a 0-to-100 scale, with 100 being “very supportive”. Among all investors, the average response came to 49.09, about as middle of the road as a response can get. Senior Corporate Executives rated the new tax laws at only 52.69, not overwhelmingly supportive, while investors in the field of Education placed their level of support at the notably low 40.88.
As might be expected, investors who self-profess to be Republicans rated the corporate tax rate change very positively, at 69.19, while Democrats rated it very lowly, at 25.61. Segmentation by wealth showed that investors with a net worth of $2.5 million or more were more supportive than those with less wealth, male investors were more supportive than female investors, and Millennials were less supportive than older investors.
The controversy surrounding the corporate tax rate decrease was how corporations would respond to a lower tax bill. Investors responded in a way that makes it seem like the controversy is ongoing.
Forty percent of all investors believe the big winners in the corporate tax rate drop are the chief executive officers, senior management and predominant shareholders, who will effectively pocket the extra funds which will be available rather than spend them on employee benefits or company improvements. Twenty-seven percent of all investors believe the economy will benefit the most, and 25 percent said corporations will reinvest the newfound funds to increase worker wages and improve infrastructure.
As might be expected, Senior Corporate Executives were far more likely to suggest the economy and the company will benefit from the reduced tax rate, while Professionals (doctors, lawyers, accountants) and Educators were more likely to expect Senior Corporate officials to benefit the most.
Top Takeaways for Advisors
Almost all investors are going to be impacted by the reduced corporate tax rate, as stock prices are expected to climb as company tax liabilities lessen. Advisors should point out to investors how their portfolio is affected by the corporate tax rate reduction to allow the investor to make future decisions regarding corporate investments.
©2018 Spectrem Group