What Does the Corporate Tax Cut Mean for L&D?

The Tax Cuts and Jobs Act dropped the corporate tax rate by 14 percentage points. Should more of those savings go to L&D?
corporate tax cuts education

The Tax Cuts and Jobs Act passed in December 2017 is the biggest one-time corporate tax rate reduction in U.S. history. The rate dropped from 35 percent to 21 percent, leaving major corporations with money to spend. Deloitte’s “CFO Signals: 2018 Q1” report found that 31 percent of CFOs expect to increase domestic hiring and 38 percent anticipate raising wages as a result of the tax reform. According to The Washington Post, Republicans argue the cuts will provide a surge for the economy, but most independent economists and Wall Street banks predict the growth will be modest and short-lived.

Either way, companies must decide what to do with this extra cash. According to a recent poll by BizBuySell, 32 percent of small businesses plan to use the majority of their tax savings to invest in marketing and sales initiatives, and 21 percent plan to invest in physical improvements to business. Of the 1,100 small-business owners polled, only 12 percent said they plan to use the savings to invest in current employees.

That number seems about right to Camille Preston, a psychologist who has spent the past 20 years looking at systems and understanding how to promote resiliency. She is also the CEO and founder of AIM Leadership, which develops individuals, teams and organizations to be more agile and impactful in a changing environment. She said the current market instability and political instability are leading to a sense of uncertainty that has been rippling into corporations she works with.

According to Preston, learning and development strategies won’t change as a result of the tax credit. “Corporations are making decisions based on pre-existing strategies. I don’t think the tax cut is having a drastic impact,” she said. “I think they are allocating those resources to what will optimize their business, whether that’s shareholder value or investing in infrastructure assets. They are using a business mind rather than a human capital mind to think about how they reallocate those resources.”

An article in The New York Times outlined various investments by companies like Home Depot, JetBlue and Pfizer that will give their extra cash to shareholders through stock buybacks. It was also reported that Apple, AT&T, Comcast, Verizon and Disney are giving employees one-time bonuses. BNY Mellon, FedEx, JPMorgan Chase, Walmart and US Bancorp are raising wages.

But Preston compared the entire tax credit to the short-lived feeling of getting a raise. “Research shows that when someone gets a raise, they feel good for a finite amount of time and then it’s almost like regression back to the mean,” she said. “They don’t really notice that raise and they go back to feeling about the job how they felt about the job prior to that raise.”

RELATED: Will Tax Cuts Give Rise to a New American Apprenticeship? 

If an organization is trying to create engagement or collaboration with their employees or make it a more enjoyable place to work, Preston said how it uses the tax cut is not going to be the lever that will move this factor. “If companies are really interested in investing and engaging employees, they can do that, but I think it’s decoupled in most companies’ minds from the tax cut — unless they have a strong PR team who’s really pushing what they are doing and why they are doing it as a one-off,” Preston said.

Indeed, some companies are investing in employees with the tax savings. Boeing will spend $100 million on workforce development, training and education; Disney will spend $50 million for tuition payments for its hourly employees; and AMN Healthcare will, among other investments, add $100,000 to its $4.2 million training budget.

“We had a large commitment to training anyway, but now we put some additional dollars against our budget that were originally in the plan to focus specifically on training,” said Julie Fletcher, chief talent officer at AMN. “Last year we were named on the Fortune list as No. 11 fastest growing company. So you can imagine from a talent perspective, we have to keep up with that growth internally.”

Part of the investment will go toward a new leadership development program. This year, they will fly every new leader in for a 2 1/2-day session to set the stage for leadership expectations. “Bringing our leaders in for a culture deep-dive when they first start really helps from the onset to communicate our expectations of leadership,” Fletcher said.

The company also intends to do more e-learning through its newly acquired LMS, improve career development tools on its intranet and improve its job rotation program. Fletcher said they also want to listen to their team members to find out what kind of training the employees want. Through the firm’s past engagement surveys, they know their employees desire more development opportunities. “Knowing that more dollars are being spent on training is something that excites our employees,” Fletcher said. “We’re doing a good job of it today, but with some additional dollars we’re able to invest in development even further — whether that’s on-the-job training, technology or career development.”

Fletcher said when companies are deciding where to spend their tax savings, they should be thoughtful about what their team members want. She said she admires AMN’s own comprehensive approach and believes it will have a long-term effect. “Giving employees bonuses is a wonderful thing to do, but what will that mean a year from now?” she said. “Instead, we’re building up everything from work environment to culture to investing in development.”

A long-term effect is what Preston is looking for too. She said corporations understand the impact of engagement on the bottom line, but their drive for engagement is often short-lived.

“The best investment for corporations is developing individuals’ self-awareness — helping individuals understand who they are and what they need to perform at their best — and then providing resources so they can make small modifications in their work environment so they can spend more time at their best,” Preston said. “If corporations did this, very quickly they would be able to separate engaged employees from unengaged employees. The employees who got excited about this would be the ones you would want to invest more resources with.”

This story originally appeared in Talent Economy‘s sister publication, Chief Learning Officer

Ave Rio is an associate editor for Talent Economy. To comment, email editor@talenteconomy.io.