Tax overhaul boosts small biz, but expenses temper outlook
Small-business owners such as Sandeep Thakrar are overhauling their 2018 business plans as a result of the sweeping federal tax cuts, with many saying they’ll use their savings to boost investment, hire more workers and dole out raises, a new Bank of America survey shows.
Thakrar owns Neema Hospitality, which operates 10 limited-service hotels in Pennsylvania, Maryland and West Virginia under the Marriott, Hilton, Choice and IHG brands. Among his plans: renovations at his properties. He’s even considering expanding.
“Tax reform has been described as a
game-changer, and they’re investing back in their businesses, and you can see it,” says Sharon Miller, head of small business for Bank of America.
USA TODAY got a first look at Bank of America’s survey, which highlights swelling optimism among America’s small-business owners. However, it also points to growing concerns about rising interest rates, gasoline prices and health care costs, among other issues.
In the short term, the tax cuts are bolstering small firms’ outlook and prodding them to back that up with action. Seventy-one percent of entrepreneurs expect the tax reform to save them money, according to the nationwide survey of 1,032 small-business owners who employ two to 99 workers. Thirty-seven percent expect to invest in their business, 21% plan to give workers raises and bonuses, 14% expect to hire new workers, 14% say they will expand their operations and 12% plan to make capital improvements. The poll was conducted Feb. 12 to March 26.
Other monthly surveys have shown small-business hiring and investment plans surging as the tax cuts became likely or after they passed Congress late last year. But the semi-annual Bank of America small-business owner report reveals a direct link between the tax revamp and their business blueprints.
Fifty-six percent of the small-business owners surveyed believe that over the next 12 months their local economy will improve and 54% say the national economy will improve, the highest readings since 2015.
The economic expansion “seems to be broadening” to more industries and regions of the country, Wells Fargo Senior Economist Mark Vitner says.
“We are more confident that the economy is heading in the right direction and plan to invest in renovations and (are) currently evaluating” buying and building more hotels, Thakrar says. Noting that he expects revenue to grow 5% this year, Thakrar aims to add one or two hotels through acquisition or new construction. The tax cuts, he says, are putting more money in the pockets of consumers and businesses.
“A lot of people like to travel when they get money,” he says.
The tax reform is also aiding Thakrar more directly. Like most other small businesses, he reports his business profits as income on his individual return. The tax overhaul trims personal tax rates, with the top rate falling to 37% from 39.6%. More critically, it allows such businesses to write off 20% of their income for tax purposes. And it increases the amount of capital outlays that can be deducted from taxable income in the first year.
Thakrar says he expects to see substantial savings from the new law. He’s planning to spend about $1.2 million on hotel renovations in 2018, pushing up some of the work because of the tax savings. He also plans to replace several hot water heaters and two roofs this year, at a total cost of about $180,000, because of the incentives for faster tax write-offs. Across the U.S., such moves add up, increasing employment at companies that make and install equipment and materials, as well as economic growth broadly.
Robert Brooker, chairman of
WIN-911, says the Austin-based software company will add five or six workers to its U.S. staff of 35 this year, up from the two or three it was planning to bring on. “It’s allowing us to … hire more people,” he says of the tax benefits.
At the same time, concerns are growing about rising expenses. Seventy-five percent of the small businesses polled worry about health care costs, up from 64% a year ago; 51% about interest rates, up from 37%; and 50% about prices of commodities, such as gasoline, up from
36%.
Brooker, who provides health coverage to his employees, calls rising health care premiums a “big problem.”
And with the Federal Reserve gradually bumping up interest rates in an improving economy, small businesses are especially worried since many have loans with variable rates that change each quarter, says Ami Kassar, CEO of MultiFunding, a small business loan adviser and author of The Growth Dilemma.
Thakrar frets about rising rates on the five-year loans he took out to grow his hotel chain and climbing gasoline prices that could crimp Americans’ travel budgets.
“When everyone says the economy is good, I do have some hesitation,” he says.