One of the most significant and controversial aspects of Donald Trump’s presidency was the passage of the Tax Cuts and Jobs Act (TCJA) in December 2017. This sweeping overhaul of the U.S. tax code was designed to stimulate the economy by lowering corporate tax rates, reducing individual tax rates, and incentivizing business investments. While many industries felt the impact of the tax cuts, the furniture business—especially large manufacturers and retail chains—had its own unique experience with the changes. In this blog, we’ll explore how Trump’s tax cuts affected the furniture business and its various players, from manufacturers to retailers to consumers.
Lower Corporate Taxes: A Boon for Large Manufacturers
The TCJA lowered the federal corporate tax rate from 35% to 21%, a dramatic reduction aimed at stimulating investment and increasing business profitability. For large furniture manufacturers, this reduction in tax liability meant they could keep more of their profits, which they could reinvest into their businesses in several ways:
- Reinvestment in Operations: With the tax savings, many large furniture companies had more capital available for reinvestment in their operations. This included upgrading manufacturing facilities, automating production lines, and expanding their production capacity to meet demand. Manufacturers could also invest in research and development to improve their product offerings or explore new market segments.
- Expansion of Domestic Production: One of the goals of the Trump administration’s broader economic policies was to encourage companies to bring manufacturing jobs back to the U.S. The tax cuts provided large manufacturers with more financial breathing room, allowing them to consider reshoring production. Some U.S.-based furniture companies, for example, began to bring back certain types of furniture manufacturing that had previously been outsourced to countries like China and Vietnam. This move aligned with Trump’s “America First” agenda and created opportunities for jobs and growth in local communities.
- Increased Shareholder Returns: Many public furniture manufacturers used the tax savings to buy back stock or pay dividends, increasing shareholder returns. This was an attractive option for many companies that were already financially stable but needed ways to appease investors and keep their stock prices high. While stock buybacks don’t directly impact furniture production or retail, they do affect the financial health and market position of publicly traded companies.
Small Manufacturers and the Disparity of Benefits
While large furniture manufacturers may have been able to take full advantage of the tax cuts, the benefits for smaller, independent furniture makers were less clear. Small businesses typically don’t have the same capacity for reinvestment as large corporations, and many did not experience the same scale of tax savings. In fact, some small manufacturers struggled to compete with the large firms that were able to use their tax windfall to boost productivity and drive down costs.
- Investment in Upgrades: Smaller companies may not have had the financial capacity to reinvest their tax savings in the same way. Without access to significant capital, they were less likely to upgrade equipment, expand production, or increase their workforce. As a result, the gap between large and small manufacturers may have grown, as smaller firms struggled to compete on price and scale.
- Limited Impact on Operating Costs: For small manufacturers, the tax savings were not always enough to offset the rising costs of raw materials, labor, and shipping. Especially for those that relied heavily on imported goods or parts, the costs from Trump’s tariffs (which were implemented around the same time as the tax cuts) may have outweighed any savings from the reduced corporate tax rate.
Retailers: How the Tax Cuts Changed the Retail Landscape
The TCJA also had an impact on furniture retailers, both online and brick-and-mortar. For these companies, the tax cuts provided an opportunity to pass on savings to consumers, reinvest in their businesses, or improve their competitive positions in the market. However, the impact varied depending on the size of the retailer and its market focus.
- Consumer Discounts and Promotions: With more money in their coffers, some large furniture retailers passed on the savings to consumers in the form of discounts, special promotions, and loyalty programs. This was particularly helpful for retailers that operated on thin margins and relied heavily on volume sales to remain competitive. Offering consumers lower prices or better deals helped them maintain or even expand market share, especially when competition from online furniture brands was intensifying.
- E-commerce Investments: Many furniture retailers, including large chains like IKEA and Wayfair, invested their tax savings in enhancing their online presence. E-commerce was already an area of growth in the furniture sector, and the tax cuts gave many companies the capital needed to improve their websites, expand their digital marketing, and refine their logistics. For instance, investing in faster shipping options or developing augmented reality (AR) tools that helped consumers visualize furniture in their homes became more feasible with the additional capital.
- Opening New Stores and Expanding Locations: Some furniture retailers also used the extra funds to expand their physical retail locations, though this trend was somewhat more muted given the growing emphasis on e-commerce. Expanding showrooms or opening new stores in high-traffic areas allowed retailers to capitalize on the “try-before-you-buy” experience, which is still a critical part of the furniture shopping journey for many consumers.
Impact on Consumers: Price Increases vs. Savings
For consumers, the effects of Trump’s tax cuts were less direct but still important. While the tax cuts provided more disposable income to some consumers due to lower individual income tax rates, the savings were often offset by rising furniture prices caused by tariffs on imports from China. This made it harder for some consumers to benefit fully from tax savings, particularly those on a budget.
- Higher Furniture Prices: Many furniture companies, especially those importing goods from China, raised their prices to cover the cost of tariffs imposed on Chinese-made furniture and raw materials. As a result, while some consumers enjoyed increased disposable income from tax cuts, the overall cost of buying furniture—particularly upholstered furniture and imported pieces—rose significantly.
- Shift Toward Domestic Products: In some cases, consumers turned to domestically produced furniture as a response to higher prices for imports. The increased visibility and appeal of U.S.-made products, driven in part by Trump’s “America First” policies, may have encouraged consumers to prioritize domestic furniture lines, which often command a premium price.
Long-Term Impacts: The Legacy of the Tax Cuts on the Furniture Sector
As the furniture industry adjusted to the changes brought about by Trump’s tax cuts, some companies emerged stronger, while others faced challenges. Larger, established manufacturers, in particular, had the capital to reinvest in growth, create new jobs, and upgrade their processes. Smaller companies, however, struggled to keep pace, particularly with rising costs from tariffs and other external pressures.
Looking forward, the long-term effects of these tax changes will depend on the ability of furniture companies to adapt to changing market conditions. With increasing competition from e-commerce brands, shifting consumer preferences, and global trade dynamics, companies will need to find new ways to innovate, streamline operations, and offer value to both consumers and shareholders.
In conclusion, Trump’s tax cuts provided mixed benefits for the furniture business. Large manufacturers and retailers reaped significant rewards, while smaller companies had to contend with the broader economic pressures of rising costs and competition. Ultimately, the legacy of these tax cuts may be a more consolidated and competitive furniture industry, where the winners are those who can leverage their financial advantages to adapt to the new marketplace.
