7 things that CEOs are doing with their tax savings

In late 2017, CEO confidence in the economy surged to a decade peak. The Q4 2017 Vistage CEO Confidence Index survey found that CEOs’ plans for investments were robust and expectations for profitability were very high. These projections were likely driven by the Tax Cuts and Jobs Act, which many experts believed would lead to significant tax savings.

Fast forward to Vistage’s most recent survey conducted in March of 2019, which revealed continued erosion in profitability and revenue expectations from peaks set in December of 2017. The survey data also indicated that the impact of the new tax law has not been as positive as expected.

In his analysis of the Q1 2019 CEO Confidence Index, Dr. Richard Curtin, a researcher from the University of Michigan, noted that increased profits were anticipated by 58% of CEOs, down 8 points from last year’s 66%. “Presumably, CEOs based last year’s assessment on how they expected to benefit from the new tax legislation and this year’s assessment on actual computations,” Curtin said.

Further analysis concludes that the Tax Cuts and Jobs Act may have fallen flat for small and midsize businesses. While 43% of CEOs indicated that their tax bill had decreased, 49% reported that it had remained the same and 8% saw their tax liability increase.

Nonetheless, there is a silver lining. While some small and midsize businesses have used their tax savings to preserve profitability, many CEOs have invested those funds back into their businesses.

Here are the top 7 ways CEOs report using their savings:

1. Investing/reinvesting: Many CEOs are putting their savings back into the business in the form of capital investments. 41% of CEOs reported that they plan to increase fixed investments in the next 12 months. For some, this investment funding will come from their tax savings.
2. Hiring: 59% of CEOs in the survey indicated they are expanding their workforce, and tax savings is one way they are able to fund this expansion.
3. Employee compensation: Whether by awarding one-time bonuses or increasing wages, many CEOs report reinvesting in talent.
4. Cash reserves: In anticipation of increasing costs and a slowing economy, many CEOs report using tax savings to add to their cash reserves.
5. Employee benefits: Another way CEOs are investing in people is by adding benefits such as retirement programs, 401K matches, education and training.
6. Debt paydown: While some CEOs are saving cash in preparation for a downturn, others are reducing their debt.
7. Other income distribution: The savings from taxes is used by some CEOs to distribute income through owner draws, increased dividends or shareholder distributions.

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