There has been a long-held view that politics and business need to be kept at an arm's length. During the highly polarized political environment surrounding the Brexit vote in the UK and the 2016 election in the US, there were clear lines drawn in the sand and huge friction between opposing sides. The convention that you don't reveal your politics at work became even more important, because, to many, it has nothing to do with their employment.
However, in the real world, politics has a huge impact on businesses, perhaps more than any other external factor.
Governments over the past few decades have aimed to create 'pro-business' environments, by reducing taxes, decreasing red tape, and increasing infrastructure investment. This is something that the December 2018 tax bill passed in congress aims to do through decreasing corporate tax rates by 14%, from 35% to 21%. This has been a core part of Republican thinking over the past several decades, with similar huge corporate tax cuts taking place under three of the last four Republican presidents.
These have had positive results for large companies and company owners, with profit margins since Ronald Reagan's tax cuts significantly increasing. However, this has also coincided with decreasing quality of life for the average employee and increasing income equality between those at the top and those below. These have historically created budget deficits, with George W Bush's 2001 tax cuts increasing it by $1.5 trillion between 2002-2009 and $3 billion between 2010-2019 according to the Congressional Budget Office (CBO).
With the 2017 bill, the deficit is predicted to increase by a further $1.4 trillion over the next decade, which will have a knock-on effect for businesses. This is because although there is little doubt that their profits will increase because they will be paying less tax, they will be doing business on increasingly poor infrastructure, so busier rougher roads impacting their supply chain, less safe bridges, more delays during flights, and a less robust national data network. This is because as the deficit increases, the amount that will need to be paid in interest charges will increase, leaving less for the basic functions of government. It will also lead to increased income inequality which has historically had significant negative societal impacts, including reduced educational attainment, worse physical and mental health, and reduced social mobility.
It is also likely to cost companies more in healthcare costs for their employees as the bill strips out the individual mandate that says people don't need to have health insurance, essentially pulling the rug out underneath the ACA. This will save $300 billion, but will see millions of people lose their health insurance and increase the amount that others need to pay at the same time as public health is likely to decrease. The reasons for this are simple - in order for the insurance market to decrease prices they need healthy people to subsidize sicker people. If there is no law dictating that everyone must have health insurance, people will only get it when they need it, so there will be a higher ratio of sick people - meaning costs will increase. This increase will not only see costs increase for sick people though, it will see prices increase across the board, so with 55.7% of Americans receiving their health insurance from their employers, companies will ultimately need to foot the bulk of the bill as the CBO estimates healthcare costs increasing by 10% annually under this new plan.
However, some of the largest companies in the US who operate globally are beginning to bring money back into the US following these changes to the tax code. Apple have announced that they will be repatriating $38bn - a small percentage of the reported $200bn held abroad, but a significant amount regardless. It could also spark other huge tech giants to do the same, with Microsoft holding $143bn abroad, Alphabet holding $107bn, and Cisco holding $76bn. If this money is brought back into the US and taxed, even at a lower rate, this would represent a significant bonus for the federal coffers.
Both of the above are examples that have been well covered, but the one that has the potential to do the most damage to companies is the changes to R&D expenditure, which will mean that rather than being able to write off this expense as soon as its paid, it will instead need to be claimed back over time.
At present there are record amounts being spent on R&D, which is pushing huge developments in new technologies and ideas, but at least part of this investment comes from the tax breaks it enables. For instance, if Apple invest billions in their R&D program, they can claim this same amount back in taxes that same year, so it makes sense for them to invest vast sums of money in these programs in order to both push their company forward whilst also reducing their tax bill. However, the new tax bill changes this and suddenly companies can only claim this back over time.
This has the potential to have a profoundly negative impact on innovation and product development programs across the US and could see the country's global tech powerhouses begin to lose some of the traction they've had through their aggressive R&D spending. The argument has been that through reducing taxes on repatriated profits, that companies will increase their investment in their workforce and R&D. However, according to a Congressional Research Service report that looked into a 2004 profit repatriation program, 'While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment'. This was also in a plan that didn't impact how companies could claim back their R&D spend, so the chances of these changes having a positive impact on R&D spend are close to nothing.