Tax reform as a people solution
The Tax Cuts and Jobs Act has gone from a hot topic of conversation that closed out 2017 to an operational reality with widespread implications for how businesses operate, invest, compete and deliver products and services. And while corporate tax and finance professionals are grappling with the myriad details around implementing the new law, others in the organization are facing a different challenge: making sure their allocation of tax savings will strategically support their business and their people, particularly over the long term.
We began to consider the possibilities and set them in the context of a parallel conversation: What if companies decided to put their tax savings toward closing the “opportunity gap” — the disparity that arises due to a variety of factors, from gender, age and ethnicity, to education and training, to access to mentors and sponsors? One of these opportunity gaps is well known: on average, women in the U.S. have to work more than 15 months to make what a man does in 12 months, according to U.S. Census data. Could tax reform actually help close that pay gap?
To get a better understanding of how businesses across a variety of industries are investing their tax savings, Ernst & Young LLP conducted the Tax Reform Dollar Deployment Survey, posing a range of questions to 500 C-suite executives in the U.S. from companies with $500 million or more in revenue. Their responses indicate that some businesses are thinking about investing some of their tax reform savings in their people, and this could signal a positive impact on opportunity, gender or pay gaps.
To start with, the responses indicated that 81 percent of companies are aware of gender or racial pay gaps and 69 percent have plans to address them — both encouraging statistics. A large majority of respondents (89 percent) plan to enhance compensation, with 41 percent increasing salaries across the organization and 35 percent focusing on increasing their minimum wage. Almost a quarter say they’ll be dedicating 10 percent or more of their tax savings dollars to compensation, with the average spend of 8 percent.
The news was even better when looking at some of the other planned investments earmarked for tax reform savings, implying long-term support for a more effective workforce. For example, 41 percent plan to invest in workforce development and training — arguably one of the most strategic approaches to sustainable success via reskilling and upskilling for the new workforce model. Over a quarter of respondents plan to provide their workforce with student loan debt assistance and 45 percent will enhance such benefits as health care or family leave. Opportunity gets a boost as well, with 28 percent of respondents reporting that they plan to create more jobs.
The world continues to change as a result of developments in globalization, demographics, technology and regulation. These disruptive forces require organizations to change rapidly — and they need all their people to be agile and adaptable to that change. This trend is a critical element of success for company innovation and growth, and may explain why so much of the newfound cash will be invested in training and job creation.
Providing equal opportunities across the board and promoting fair practices across all diversity dimensions is not a “feel-good” exercise — it’s a business imperative. If the new tax rates and policies encourage and enable that approach, all the better. And even for firms like ours — partnerships for which the lower tax rates don’t apply — it’s vital to make sure we’re all doing our part to close the gaps.
We applaud every organization that makes a concerted effort — with or without tax benefits — to support equitable opportunity, experiences and rewards that will help all their workers stay engaged in their careers and contribute their full value to the companies that employ them in the communities where they live and work. The collective potential of all these plans raises hope for a people solution with a lasting effect.
The views expressed are those of the authors and do not necessarily represent the views of Ernst & Young LLP or any other member firm of the global Ernst & Young organization.