With the U.S. Congress back after a five-week hiatus, lawmakers have faced a legislative agenda packed with high priority and contentious issues. Potential changes in legislation included another attempt to repeal and replace the Affordable Care Act (ACA) as well as the passing of the National Defense Authorization Act that sets defense policy and spending levels. And while congressional leaders agreed to raise the debt limit and fund the government for three months, as well as provide aid for victims of Hurricane Harvey, there's a lot left to accomplish, including an item at the top of the President Donald Trump's list of priorities: the overhaul of the federal tax code.

Will Lower Tax Rates Create a Tighter Labor Market?

While the details of legislation designed to reform the U.S. tax code remain sparse, Trump frequently cites the need for significant cuts in the corporate tax rate for the U.S. to remain competitive in the global economy.

Yet economists remain divided on the benefits of a tax cut, as The Washington Post notes. If Congress manages to pass changes to the tax code that include a cut in corporate tax rates, your business will pay less in tax and have more cash on hand. Consider how your organization would use the excess funds. While some businesses may opt to place the tax savings in the bank, others may decide to pay down debt, hire more employees or invest in equipment (hence the debate regarding the effect of the proposed tax cut).

Planning what to do with the excess — at least in concept — can help minimize the delay between the granting of a tax cut and the use of funds it unlocks. If hiring increases, it may lead to a tightening of the labor market and result in higher wages and salaries for new hires, as well as calls from existing employees for increases in their compensation. Therefore, consider the inflationary effects of a tax cut on your organization's labor costs as well.

Stay up-to-date on the latest human capital management insights for finance leaders: subscribe to our monthly e-newsletter.

Tags: compensation cost reduction Global Workforce