The “Tax Cuts and Jobs Act” passed by the US Congress last month, which lowered taxes on corporate profits and most employees’ salaries, has a number of implications for employers, affecting payroll withholding as well as the tax treatment of executive pay and some employee benefits. One of the arguments the Trump administration and Congressional Republicans advanced for the tax cuts, which were historically unpopular among the American public, was that lowering the corporate tax rate would incentivize companies to use their tax savings to invest in their workforce, giving millions of employees a much-needed raise.
While several large employers announced plans to issue bonuses to employees, raise wages, or make other business investments after the tax reform bill was passed, most companies have indicated in earnings calls and surveys that they plan to parlay most of their tax cuts into debt repayment, dividends, and stock buybacks. Corporate America, Solutionomics founder Chris Macke argued in an op-ed at the Hill in December, was already sitting on large piles of cash and not prioritizing business investment due to insufficient demand. Companies, he wrote, need more customers more than they need more cash.
Whether or not US companies decide to invest more of their tax savings in growing their business (which they may still face public pressure to do), Bloomberg’s Rebecca Greenfield notes that these investments probably won’t come in the form of across-the-board raises. For most workers, the 3 percent annual raise, which has been standard for five years, will likely remain the norm in 2018: