Small Businesses Hesitant to Boost Rewards in Response to Tax Cuts

Small Businesses Hesitant to Boost Rewards in Response to Tax Cuts

The tax reform bill passed by the US Congress in December, which drastically lowered the corporate tax rate from 35 to 21 percent, has prompted numerous large employers to announce raises, bonuses, or upgrades to their benefits packages as a means of passing on some of their tax savings to their employees. On Wednesday, the restaurant chain Chipotle announced a round of one-time cash bonuses and stock grants, as well as increased parental leave coverage for many employees. On Thursday, CVS said that it would boost hourly employees’ pay from $9 to $11 per hour, among other pay rate increases, and now provide up to four weeks of paid parental leave for full-time employees. Walmart, Starbucks, Disney, Wells Fargo, and other large companies have made similar moves.

What remains unclear, however, is whether these rewards (most of which consist of one-time bonuses rather than permanent wage increases) are sustainable and whether the benefits of the tax cut will redound to the majority of Americans who don’t work for large corporations. Small business owners are reluctant to make similar moves, much as they would like to, until they have a better sense of how much money they will actually save from the tax reform. As the Associated Press’ Joyce Rosenberg pointed out this week, smaller companies have less clarity on that issue than large corporations do, and questions remain as to how new deduction rules will pan out for small business owners. In addition, small and mid-sized businesses have nowhere near the same cash reserves or credit lines as big companies do, which makes the awarding of bonuses and raises a much riskier endeavor.

This difference between larger and smaller businesses is another example of the theme of “corporate inequality” we’ve been observing in the US over the past few years, as large, highly productive, or high-margin businesses run away with a greater share of economic growth. With more money to burn, the theory goes, these companies have an advantage in attracting and retaining top talent with higher pay and better benefits, making it harder for less profitable firms to catch up.

Ultimately, what’s driving wages up in the US is a historically tight labor market: While tax reform may help push that trend forward, the main reason many employers are paying more (if they can) is because talent is scarce and harder to attract. Organizations that can’t find or can’t afford the people they need to grow will inevitably lose out to those that can, irrespective of the size of their tax bill. While some small employers told Rosenberg that the tax cut is making it easier for them to compete for labor in this low-unemployment environment, it’s not really the deciding factor.