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Planned Tax Cut: What It Means for Job Creation

Posted by Jeff Pelliccio on Jun 9, 2017 9:00:00 AM

In ICS insights

Currently, the House of Representatives has sent a new tax plan bill, aimed at cutting taxes, to the Senate, which raises the question among HR departments everywhere: What is this going to mean for us?

Obviously, there are a lot of caveats. The bill, in its current form, has yet to pass the Senate and President Trump's influence on it is uncertain. It is expected to change a great deal before a version can pass Congress and be signed into law. This is also an area filled with rhetoric and political spin, so unbiased sources can be hard to find. That's why we want to take a clear look at key effects the current tax plan would likely have on the job market, staffing options, and hiring practices.

Businesses Are Likely to Benefit

The common theme that tax cut discussions have at this time is a generous cut for corporations and those with high levels of income. Regardless of what you think about the economic theory at work here, this means that companies are likely to walk away with more disposable income than before. Priming the pump like this is meant to, among other things, encourage job growth – but this tends to depend heavily on what industries are currently investing in. For example, if the fast food industry is currently investing in automation, it will use tax cuts to continue investing in automation, which will decrease the number of jobs available. Meanwhile, the healthcare industry might be more interested in investing in IT service, which could increase the available positions in that industry. In other words, tax cuts to large companies tend to speed up current trends, rather than create new ones.

...But Economy Growth Is Not Guaranteed

Economists remain unsure if any particular tax cut can boost short-term economic growth, especially in a period of stabilized growth like the one we are currently in. This occurs because companies in a steady, fruitful economy tend to already be at or around their ideal employee and production levels. Individual or industry-related circumstances may cause them to change, but in large part they aren't interested in that type of economic growth. Instead, when these businesses see rising demand, they are likely to raise their prices long before considering new hires. So there is no guarantee that a tax reform would add jobs to the economy – although it is more likely in struggling industries than in successful ones.

Deductions Encourage R&D

One specific deduction package planned by Congress thus far has an interesting break for R&D, allowing businesses to more liberally count investment into research and development as income deductions. This piece of legislature appears less inflammatory than other parts of the tax bill, and has a relatively good chance of being included in whatever version the Senate produces, which means we could see the effects in action. If companies favor an R&D approach, we can expect increased demand for related talent such as skilled technicians, researchers, engineers, designers, and others from related fields. This will also encourage staffing agencies to focus more on these technical skills if the move spreads throughout multiple industries.

IT Positions Could See Long-Term Advantages

Two important things to note here. First, an expanded R&D budget and easier expensing is also likely to provide a boost for the IT industry. There are many companies - and yours may be one of them - that would love to find more room in the budget for new data security positions, virtualization experts, and temp IT hires to help with systems upgrades. 

Second, other administration trends are combining with the tax plan to make offshoring IT services much more difficult than in the past. Domestic hires may soon look like the easier and more affordable option for services that would have included overseas outsourcing, thanks to more H-1B restrictions and similar efforts to encourage hiring within the country.

This is a particularly rich area for companies and staffing agencies like ICS to work closely together when finding the right domestic talent to meet current IT and service goals. 

Working Parents May Get a Boost

The working parents deduction allows families with dependents to take extended deductions for caregiving expenses, and in its current form is particularly focused on middle and lower class income levels. If this part of the plan remains, it could help busy parents find more time for temp work, a return to their old job, or an opportunity to seek out new positions – if the discount in caregiving expenses is significant enough to shorten their time spent at home.

Higher Interest Rates Could Impact Employee Decisions

Federal Reserve officials have already stated that the current plan regarding tax cuts is a rapid increase in interest rates. This move would primarily affect private individuals' ability to take out new loans or obtain other types of financing. That generally makes it more difficult for entrepreneurs to start new businesses and hire new employees. However, it also affects how employees and job candidates are willing to move. Higher interest rates usually mean that people are less likely to move to a job in a region with high real estate prices and few renting opportunities, but more likely to move to an area with a high rental vacancy and low prices.

The Government Deficit Appears Likely to Rise

As a general rule, it's very difficult for a tax plan to do two opposing things at the same time. It's almost impossible to cut high income and corporate taxes without raising the government deficit, at least in the short term (short term here meaning 5-10 years, thanks to Congressional rules about balancing the budget). If these tax cuts do take effect, that will probably lead to less money for the government to use. The administration also appears happy to cut government jobs and anxious to avoid creating additional deficit concerns: All in all, this means that new government hires/projects could decrease, and that contractors depending on government work may be returning to the private sector.

If growth does come out of these tax cuts, you'll be looking to take on more talent.  That's where we can help. We'll find you the best employees that fit right into your organization. When you're looking for top talent and making lasting connections with people who can connect you to the right candidates, contact us on our site!
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