The stock market and the consumer expectations index reflect rising economic optimism by the public. Here are five reasons contractors should be optimistic about 2017.
1. A Good Prospect of Tax Cuts
With the President-Elect, House, and Senate leadership all vowing to cut taxes, prospects for rate reduction are good. This is the single best thing that could be done for U.S. global competitiveness.
Corporate tax rate reduction is overdue. Only Chad and the United Arab Emirates have top marginal corporate tax rates higher than the U.S. According the Tax Foundation, the U.S. tax rate at 39% is 31% higher than the GDP weighted average worldwide at 29.8%. A cut will help level the competitive playing field for U.S. businesses and reduce incentives for companies to relocate offshore to avoid punitive tax policy.
The top personal federal income tax rate is 39.6%. The top state rate is 13.3%. Combined, that’s more than communist China (45%) and Cuba (45%). It’s more than European Germany (45%), France (45%), and Britain (45%). It’s right in the middle of the Scandinavian social economies of Norway (46.9%), Denmark (51.95%), and Sweden (59.7%). Reducing rates means the affluent who pay the top rates have more money to spend or invest and less incentive to avoid taxes. Individuals do a better job injecting money into the economy or investing it than the government. Moreover, letting people keep their own money is moral.
Capital gains taxes should also be reduced. These punish investment and are paid when a business, real estate, or other investment gains value and is sold. The top U.S. rate is 28.6%, which is 23% higher than a weighted average of developed countries at 23.2% according to the Tax Foundation. Lower capital gains result in more investments due to better after tax returns. Also, much of long term capital gains is not the result of appreciation, but inflation.
Reducing rates will not raise deficits. Deficits are the result of spending. The last eight years have proven that. When rates are more competitive on a global stage, growth is unleashed and government tax revenue swells. This was proven with the Reagan tax cuts. The Heritage Foundation reported, “In 1980, the last year before the tax cuts, tax revenues were $956 billion (in constant 1996 dollars). Revenues exceeded that 1980 level in eight of the next 10 years. Annual revenues over the next decade averaged $102 billion above their 1980 level (in constant 1996 dollars).”
2. Regulation Nation Will Slow
Given the size of the federal bureaucracy, it’s hard to envision much of a regulation rollback. However, some of the more notorious regulations might be repealed, especially those that were enacted through executive orders or by the bureaucracy without Congressional approval.
3. Economic Growth Will Exceed 3 Percent
The combination of pent up demand from the slow growth policies and uncertainties of the Obama administration, more confidence in prospects of a pro-business attitude from the Trump administration, and private equity sitting on the sidelines (over $1 trillion according to Grant Thornton) means the economy will grow at least 50% faster than the growth rates of the last eight years. If tax cuts are realized and regulations rolled back, hang on.
4. Oil Will Be Plentiful
The combination of horizontal drilling and fracking has already unleashed a renaissance in the oil and gas industry. Instead of peak oil, we are on the verge of energy independence. The recent discovery of the Wolfcamp find in well explored areas of West Texas demonstrate how little we know and how much is left to discover. Wolfcamp is estimated to be two thirds larger than Prudhoe Bay.
5. New HVAC Technology is Exciting
From variable refrigerant flow technology in residential applications to the Internet of Things (IoT), this is one of the most exciting times for product development in the HVAC industry since the Pulse furnace breakthrough in the 1980s.
If you are optimistic about 2017, and you should be, this is the time to invest. Invest in your business and yourself. Invest aggressively and ride the growth curve up.
Matt Michel is CEO of the Service Roundtable. Invest in your business's future at ServiceRoundtable.com or ServiceNationAlliance.com.