Supply Executives with an Opinion See Tax Reform as a Step in the Right Direction
TEMPE, Ariz., Feb. 12, 2018 /PRNewswire/ -- On December 22, 2017, President Donald Trump signed into law the Tax Cuts and Jobs Act of 2017 (TCJA). Called the "biggest tax reform in a generation" by supporters, the TCJA changes the income tax code for individuals and corporations. A goal of this legislation is to accelerate the pace of economic growth in the U.S.
Since this legislation was highly anticipated and its various iterations closely studied by many organizations, some companies managed to implement changes to policy and practice immediately. On January 25, 2018, Institute for Supply Management(®) (ISM(®)) opened a special survey that asked members of the Manufacturing and Non-Manufacturing Business Survey Committees to (1) report on their organizations' familiarity with and activity generated by the law and (2) assess how the new tax code might impact their businesses.
Nearly two-thirds (65 percent) of responding supply executives report that their finance and executive leadership is familiar with the TCJA. They also report that a majority (50 percent) of supply management leadership is familiar with the law. Among respondents with an opinion, those expecting a positive change regarding selected organizational, strategic, and tactical considerations far outnumber those expecting a negative change.
Supply Executives Speak
Among the comments from supply executives on what the TCJA means to their businesses:
Manufacturing sector
-- "The company has increased its 401(k) match by one percentage point,
specifically due to the TCJA."
-- "Expect an increase in material costs and pressure on inflation.
Overall, the new tax laws are expected to lead to an increase in
revenues, demand for our products, and profit and growth for the
business."
-- "(Changes in) the amount of debt interest that can be deducted for tax
purposes will have a direct impact on our business."
-- "Return on initial investment increased, so our board can approve
expansion plans quicker, hopefully in 2018."
-- "It will increase our business sales and revenue. It gives us the
ability to increase the company infrastructure and research and
development (R&D) spending. Overall, it shouldn't make us more
competitive in the short term but does give us a long-term advantage for
investments, which should lead to a more competitive company."
-- "It will result in (significant dollars added) to our bottom line. We do
not know what we will do with this yet."
-- "Our business requires enormous capital investment. With this tax
reform, future capital investment will be more favorably received."
-- "The TCJA is allowing us to invest in our organization a bit more
aggressively, which will in turn create more jobs locally. And with the
increased requirements for raw materials based on the plant expansion,
we should have a fairly positive affect on the economy."
-- "We believe money will be reinvested in businesses, and individuals will
consume more products and services, increasing our revenue and net
income. The supply-demand curves are already changing, which will drive
commodity price increases. The increase in demand of products will
increase pricing for products. Finding talent will be a significant
challenge going forward. Our company is already looking at our salary
competitiveness and recruiting activities to maintain talent to support
the business."
-- "This bill positively impacted our company's overall plans. Merger and
acquisition (M&A) considerations in 2017 that were questionable due to
unknowns were approved for 2018 based on (the TCJA's) passage."
Non-manufacturing sector
-- "Improved net income and cash flow due to lower taxes. Assuming
increased capital and other spend by our customers, which should
increase revenues."
-- "It will go back into the business in terms of paying off debt and maybe
some M&A. Possible increased training. It will not affect pay, except
for possibly a few executives."
-- "Largest single impact is the decrease in tax benefit from the write-off
of scrap inventory."
-- "May reduce tax collection on a local and state basis."
-- "Net positive impact, as it will be with the rest of the economy."
-- "Our company has issued (US)$500 bonus payments to all hourly, non-bonus
eligible employees. Company has also issued five shares of restricted
company stock, vesting in five years, to all hourly employees."
-- "Positive impact on our clients will have a positive impact on us. When
the corporate tax rate drops, it is a positive for most companies."
-- "Specific look at additional acquisitions that were not planned are now
being examined."
-- "The most profound impact will be the reduction in federal excise tax on
imported merchandise. It will increase our profit margin slightly, but
the largest impact will be from competition in the pricing arena from a
retail perspective. On the domestic side, suppliers will have working
capital to invest in equipment and, therefore, be more efficient, and
their service levels should increase."
-- "We are looking forward to using the tax savings on new opportunities to
expand our company. As a result, we are going to need more people,
goods, and services."
-- "We suspect that there will be a ripple effect among our industry, as we
serve many sectors. Therefore, if our clients feel confident about the
reform and see positive results from it, they will increase their
budgets to align with revenue. Thus, we should see an uptick in business
as it relates to quotes, quote conversions to orders, and product
delivery. We anticipate our net margin/profit to increase slightly due
to the reform, but not significantly due to the extreme price
competitiveness in our industry."
Familiarity with TCJA
Respondents say that their executive and finance leadership (65 percent) is more familiar with the TCJA than their supply management leadership (50 percent). These proportions do not vary between our manufacturing and non-manufacturing respondents. A slightly higher proportion of manufacturing respondents (32 percent, compared to 28 percent of non-manufacturing) report that organizational planning is underway or has been completed. However, regarding function-specific planning, a slightly higher proportion of non-manufacturing respondents (12 percent, compared to 9 percent of manufacturing) report that function-specific planning is underway or completed.
Executive and finance leadership familiarity with the Composite Manufacturing Non-
TCJA and its potential impact on the organization Weighted manufacturing
I don't know how familiar they are 23% 21% 23%
They are not familiar with it 6% 8% 6%
They are not familiar with it, but they are looking into it 6% 5% 6%
They are familiar with it, but no organizational plans have been made 28% 27% 28%
They are familiar enough to allow for some organizational planning 17% 19% 17%
We have analyzed the text in detail, but no organizational plans have 9% 7% 10%
been made
We have analyzed the text in detail and are making or have made 11% 13% 11%
organizational plans
Supply management leadership familiarity with the Composite Manufacturing Non-
TCJA and its potential impact on the supply Weighted manufacturing
management function
I don't know how familiar they are 11% 17% 11%
They are not familiar with it 25% 19% 26%
They are not familiar with it, but they are looking into it 12% 13% 12%
They are familiar with it, but no function-specific plans have been made 39% 37% 39%
They are familiar enough to allow for some function-specific planning 9% 8% 10%
We have analyzed the text in detail, but no function-specific plans have 0% 4% 0%
been made
We have analyzed the text in detail and are making or have made 2% 1% 2%
function-specific plans
Selected Organizational Considerations
What impact might the TCJA have on key organizational results and behaviors? Supporters of the TCJA believe firms will prosper and be more likely to bring international profits to the U.S. While approximately 40 percent of respondents say they don't know TCJA's potential impact regarding these matters, those who believe the new tax code will likely have a positive impact on revenue, net income, and the repatriation of profits far outnumber those who anticipate a negative impact.
Potential impact on revenue Composite Manufacturing Non-
Weighted manufacturing
I don't know 40% 45% 40%
Decrease 1% 1% 1%
No change 32% 19% 34%
Increase 26% 35% 25%
Potential impact on net income Composite Manufacturing Non-
Weighted manufacturing
I don't know 39% 45% 38%
Decrease 0% 1% 0%
No change 27% 13% 29%
Increase 34% 40% 33%
Potential impact on repatriation of profits/capital Composite Manufacturing Non-
Weighted manufacturing
I don't know 43% 49% 42%
Decrease 1% 0% 1%
No change 46% 45% 46%
Increase 10% 7% 11%
Selected Strategic Considerations
Respondents were asked what impact the TCJA might have on important strategic actions. Might the law induce their firm to expand? What about R&D investment? Would they undertake capital investment within the U.S. or abroad? As with the issues detailed above, 30-40 percent of our respondents say they don't know the TJCA's impact on these topics; however, among those expressing an opinion, those who expect the law to likely spur business expansion and R&D investment far outnumber those who believe the law will hinder such activity.
Regarding where capital investment may occur, 7 percent of manufacturing respondents expect non-U.S. capital investment to decrease, while 4 percent believe non-U.S. capital investment will increase. Interestingly, only 1 percent of non-manufacturing respondents expect non-U.S. capital investment to decrease, while 4 percent anticipate non-U.S. capital investment to increase. This may reflect the perception that maximizing non-manufacturing opportunities abroad could necessitate local investment in those markets.
Potential impact on business expansion plans Composite Manufacturing Non-
Weighted manufacturing
I don't know 34% 43% 33%
Decrease 3% 1% 4%
No change 40% 29% 41%
Increase 23% 27% 23%
Potential impact on research and development Composite Manufacturing Non-
investment Weighted manufacturing
I don't know 41% 43% 41%
Decrease 3% 0% 4%
No change 38% 40% 37%
Increase 18% 17% 18%
Potential impact on capital investment outside the Composite Manufacturing Non-
U.S. Weighted manufacturing
I don't know 37% 44% 36%
Decrease 2% 7% 1%
No change 57% 45% 59%
Increase 4% 4% 4%
Potential impact on capital investment within the Composite Manufacturing Non-
U.S. Weighted manufacturing
I don't know 35% 39% 35%
Decrease 2% 0% 2%
No change 41% 33% 42%
Increase 21% 28% 21%
Selected Tactical Considerations
Compensation and training budgets are typically annual exercises, so the tax-reform impact on budgets for (1) salary and merit increases and (2) employee training and development are classified as tactical considerations in this report.
On these issues, 35-45 percent of respondents indicate that they don't know the TCJA's potential impact. However, zero respondents expect salary and merit-increase budgets to be negatively impacted, while 15 percent of respondents expect those budgets to increase. A small proportion of respondents (3 percent in manufacturing and 1 percent in non-manufacturing) anticipate employee training and development budgets to decrease due to the TCJA. Fifteen percent of manufacturing respondents and 12 percent of non-manufacturing respondents expect those budgets to increase.
Potential impact on salary and merit increase Composite Manufacturing Non-
budgets Weighted manufacturing
I don't know 37% 45% 36%
Decrease 0% 0% 0%
No change 48% 41% 49%
Increase 15% 15% 15%
Potential impact on employee training and Composite Manufacturing Non-
development budgets Weighted manufacturing
I don't know 40% 42% 40%
Decrease 1% 3% 1%
No change 46% 41% 47%
Increase 12% 15% 12%
Methodology
Data for this study was collected from January 25 through February 6, 2018. Responses from 17 of 18 manufacturing industries and 16 of 18 non-manufacturing industries were included in the above analysis. The "consolidated weighted" results are an average of the manufacturing and non-manufacturing results, weighted 12 percent and 88 percent, respectively. This weighting was imposed to more accurately reflect the current composition of U.S. GDP. Respondent comments have been edited to improve readability and preserve confidentiality, but the spirit of each comment remains intact.
About This Report
The data presented herein is obtained from a survey of manufacturing and non-manufacturing supply executives based on information they collected within their respective organizations. ISM(®) makes no representation, other than that stated within this release, regarding the individual company data-collection procedures. The data should be compared to all other economic data sources when used in decision-making.
Data and Method of Presentation
The Manufacturing and Non-Manufacturing ISM(® )Report On Business(®) is based on data compiled from purchasing and supply executives nationwide. Membership of the Non-Manufacturing Business Survey Committee is diversified by NAICS, based on each industry's contribution to gross domestic product (GDP). The Non-Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).
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