First Farmers Bank & Trust is set to issue $750 year-end bonuses to its more than 330 full-time employees. It's also increasing its minimum starting wage by $2.50 – the biggest wage increase in its 133-year history.
How can the Converse-based bank afford the new investment? Company officials say it’s thanks to the new corporate tax cut approved by Congress and signed into law last month by President Donald Trump.
The Republican bill marks the first major overhaul to the U.S. tax system since 1986 and drops the corporate tax rate to 21 percent from 35 percent. The tax cut took effect Jan. 1.
That savings has led to more than 100 major companies, some of which have locations in Kokomo, to increase wages, offer employee bonuses, donate to charities and make other investments in their companies.
Supporters of the bill say the tax cut is a shot in the arm to the U.S. economy, which is projected to grow by a little under 1 percent over the next decade. Opponents say the bill favors the wealthiest Americans and will add $1.4 trillion to the national deficit over the next decade.
But First Farmers, which has 34 offices in Indiana and Illinois, including a location in downtown Kokomo, has joined the growing list of banks touting the tax bill and the investment opportunities it has created.
First Farmers Vice President Tade Powell said his bank hopes the minimum-wage increase and yearly bonuses attract high-quality employees who are committed to the company. Bank officials did not release details on how much the pay raise will increase its minimum wage.
The bank is also investing a minimum of $250,000 annually to boost community development and support local branch markets, and investing at least another $150,000 annually to employee development and education.
“With a reduction in the expenses associated with federal taxes, our organization has the ability to reinvest more funds into key areas of operation to improve our ability to attract and retain valued employees,” Powell said in an email. “Our goals are to demonstrate the importance of having employees of good character with a sincere understanding of the value of exceptional customer care.”
Local PNC Bank employees are also set for a boost in benefits after the company announced last month it will contribute an extra $1,500 to employees’ pension accounts and issue a $1,000 cash bonus to 90 percent of its approximately 47,500 workers nationally.
PNC officials could not provide how many people the bank employs in Kokomo and Peru, or how many will receive the bonuses.
PNC President and CEO William Demchak cited the tax bill for allowing the company to offer the new employee perks.
“The tax reform law creates an opportunity to reward our employees who are working hard each day to serve our customers, build strong relationships in our communities and create long-term value for our shareholders,” he said in a statement.
But it’s not just banks that are saying the cut in the corporate tax rate will be a boon for business.
Walmart, which is the seventh largest employer in Howard County, according to the Indiana Department of Workforce Development, announced Thursday it is raising wages for new employees from $10 an hour to $11, expanding paid parental leave and offering a one-time bonus of up to $1,000 to eligible workers. The company said the action will affect more than 1 million employees in the U.S.
Walmart indicated the pay raises and benefit perks stemmed from the tax bill, saying in a statement, “Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S.”
However, the company also announced Thursday it will close 63 of its Sam’s Club locations – a decision Walmart said did not stem from the tax bill. The Kokomo store was not listed as one of the stores, but three Indiana locations were pegged for closure.
Meanwhile, local business owners say savings from the corporate tax cut will allow them to hire more workers and expand their services.
Andy Baker, president and owner of AndyMark, which operates from a facility on North Washington Street and manufactures and distributes mechanical and electrical parts for the competitive robotics market, said savings from the tax cut has accelerated his plans to hire more workers.
He said the company currently employs 25 full-time workers and up to 30 part-time and seasonal workers. Now, Baker anticipates doubling his workforce in the next five to 10 years.
“I think the tax bill is going to accelerate our growth,” he said. “We want more diversity with our business and more vertical integration, which requires more staff, and the tax cut its going to accelerate all that.”
Alan Krabbenhoft, dean of Indiana University Kokomo’s School of Business, said the pay raises, bonuses and other perks coming from companies in the city will have a ripple effect across the local economy. He said as more companies raise wages, others will be forced to follow suit to stay competitive and attract quality workers.
“There will be more and more companies like First Farmers and AndyMark,” he said. “When some of these companies start to raise wages, other companies that haven’t felt that pressure to do so are going to start to feel it. Why would an employee stay at a company with lower wages when they could go somewhere else and make more money?”
Krabbenhoft said the city’s economy could also benefit from a new provision in the tax bill that makes it cheaper for international companies to bring earnings stashed overseas back to the U.S.
Instead of paying the full corporate tax on that money, the bill taxes companies 8 percent for profits invested in real estate and other hard assets abroad, and 15.5 percent for profits in cash and stocks.
The lower tax rate could encourage companies like Fiat Chrysler Automobiles – one of the two largest employers in Kokomo – to bring back overseas earnings and invest them in its U.S. facilities.
But what the automotive giant will do is still a question mark, Krabbenhoft said. Even if Chrysler did bring back overseas profits to the U.S., there’s a chance the company would use the money to prop up its stocks rather than invest in its facilities.
“The question is: Will they do it? If they do, what are they going to do with the money?” Krabeenhoft said.
The corporate tax cut spurring economic growth is something economists predicted would happen, but many experts say that growth will be short-lived.
The Joint Committee on Taxation, the official scorekeeper in Congress, said the bill would grow the total size of the U.S. gross-national product by 0.8 percent over the first 10 years. But nearly every analysis of the bill said its economic impact would fade.
The Tax Foundation, a nonpartisan think-tank based in Washington, D.C., said in its analysis the tax cuts will boost GDP growth by just 0.35 percent this year, and its effect on economic growth would diminish over time.
Even AndyMark President Baker, whose company is set to see major growth because of the tax cut, said he had reservations about the bill – especially how much it’s going to add to the national deficit.
“This bill is going to help any small business, but at the same time, I’m concerned about our rising debt as a country,” he said. “Selfishly, I look at the tax cuts as a good thing, but I also want to make sure we’re not increasing our debt.
“We as a company will benefit, but I hope we’re not kicking our debt down the road to future generations,” Baker said.
IUK’s Krabbenhoft said he’s optimistic the corporate tax cut will end up having a long-term, positive impact on the local economy, but it’s still too early to tell how much it will really benefit area residents.
“I would like to be an optimist and say that this will have a beneficial impact on the economy, but at the same time, I’m a realist and I’m going to take a wait-and-see attitude. We have to wait to see what the company will do with these extra savings.”