Michigan business owners remain optimistic about the state of their companies and the national and local economy, but the jury still is out on the impact of tax reform.
PNC Financial Services Group conducted phone interviews between Jan. 12 and March 6 — 152 of them with Michigan businesses — and published the data in its Spring 2018 Economic Outlook Report last month.
The Michigan version of the semiannual report is in its seventh year. Respondents showed record-high expectations for their businesses’ sales, hiring and profits when compared with results of the six prior spring surveys.
Sixty-three percent expect to see sales increases, compared to 56 percent in 2017; 27 percent expect sales to remain at their current level, compared to 35 percent in 2017; and 5 percent expect sales will decrease, compared to 7 percent who felt that way last year.
Twenty-nine percent expect to hire in 2018, compared to 24 percent last year. Sixty-two percent expect to keep staffing the same, compared to 64 percent in 2017. Five percent of business owners expect to cut staff, compared to 8 percent who said that last year.
Fifty-six percent of respondents expect profits to increase in 2018, compared to 51 percent last year. Thirty-four percent expect profits will be flat, compared to 38 percent last year; and 7 percent expect to see a decrease, down from 9 percent who expected that last year.
Positivity about the local and national economy also remains high — 37 percent of respondents described their outlook for the national economy as optimistic, compared to the 30 percent rate of optimism last fall, while 10 percent said they were pessimistic, down from 11 percent in the fall.
About four in 10 Michigan business leaders (42 percent) said they are optimistic about their own companies.
But when it comes to tax reform, many Michigan business leaders still don’t know what to expect. Sixty-seven percent of those surveyed said they are familiar with the details of the law, but only 31 percent claimed to understand its possible impacts on their business.
Twenty-six percent said it is too early to know the impacts, and 70 percent said they do not plan to make any specific changes to their business as a result of tax reform.
When asked to predict the impact of tax reform on their bottom line, 33 percent said it would have a positive effect, 27 percent neutral and 7 percent negative.
Brian Ellis, founder and principal of Grand Rapids-based Brooktree Capital, 25 Ionia Ave. SW, is in the positive camp. He said he believes the tax overhaul will have a “flywheel effect” in which the savings will multiply for all businesses a few years down the road.
Ellis currently has one employee, whose pay he said he increased following tax reform.
“If (my business) can put more on the bottom line, I have more resources I can reward my current employees with or I can expand and hire people, which (I am) actively considering,” he said.
As an investment adviser, he said he particularly stands to benefit from the tax changes.
“I think (demand) will go up because the other people I serve will presumably have more money in their pockets and that will need to be invested,” he said.
Ellis said he understands the caution other small-business owners are feeling following tax reform.
“Small-business owners are pretty smart and prudent in their decision-making, and they have less margin of error than a bigger company,” he said. “A bigger company with more resources can absorb a bad decision better. We have to be more cautious, so we can live to fight another day.”
Jessica Oegema, manager at exotic bird store Casa La Parrot, at 124 28th St. SW in Wyoming, said she has seen firsthand the struggles small businesses face.
She answered the PNC survey on behalf of her mother, Doreen Plotkowski, the store’s owner. She said while the two aren’t up to speed on every aspect of the law, neither of them expects much from tax reform.
“We are definitely pessimistic about tax reform,” she said. “Even though we’re seeing an increase in income, more taxes keep coming out. We don’t see any benefit. It’s really frustrating.”
Oegema noted she meets regularly with a group of Wyoming business owners who say they are in the same boat.
“We always hear, ‘Oh it’s going to be better for the little guy,’ but then we don’t actually see anything. I’m not optimistic we’re going to see any kind of change,” Oegema said.
She said they plan to stay in business, but they can’t afford to invest in employees or expand.
“We would love to expand and hire more people, but payroll taxes are killing us. That’s probably our highest tax,” she said.
William Vanderploeg, president of Union Worker Communications — a long-distance phone service company for union offices — said he thinks whether a business benefits from tax reform depends on its incorporation status and industry.
His business is a Subchapter S corporation, a type of pass-through entity.
“Because I’m a Subchapter S, any tax cut will roll to me, but it will trickle down to the business through me,” he said.
Vanderploeg said he was told 20 years ago to get out of the landline business, but he has managed to survive.
“We do around $500,000 to $700,000 in sales a year. We are doing well, but it’s still a business of cancellations.”
The PNC Economic Outlook said more than three in 10 business owners and executives in Michigan are optimistic about a positive impact of the new tax legislation on sales due to consumer spending (31 percent) and business confidence (34 percent).
More respondents expect the U.S. economy to benefit from the tax legislation (41 percent) than their own business’ bottom line (33 percent).
Other challenges survey respondents reported include a shortage of qualified employees and being unable to keep up with increased demand for goods and services.