RSM Survey Shows Optimism in the Middle Market for Incoming Biden Administration

CHICAGO – (January 21, 2021) – RSM US LLP (RSM) – the nation’s leading provider of audit, tax and consulting services to the middle market – today announced results from its RSM US Middle Market Business Index (MMBI) Election Pulse Report. 

The report found middle market executives are optimistic about the future of the economy and expect the incoming Biden administration to enact significant policy changes related to infrastructure, taxes, regulations, environmental issues and the United States’ role on the world stage.

“The middle market has experienced unprecedented challenges in the past 10 months that have completely altered the landscape for businesses in the United States and around the world,” said RSM US Chief Economist Joseph Brusuelas. “The enthusiasm we see in this survey reflects businesses’ desire for action on the legislative and policy fronts, action that often accompanies a change in administration. While this survey was conducted before the results of the runoff elections for Georgia’s two Senate seats on January 5, 2021 were known, Democrats holding a slim majority in both houses of Congress and the White House indicates many of the changes noted in the survey have a higher chance of becoming reality.”

A Positive Outlook for the Economy and the Handling of the Pandemic

Middle market business leaders anticipate the U.S. economy will grow under a Biden administration. A plurality (46%) are at least somewhat optimistic about their expectations for the economy as a result of the election, though a smaller group (36%) report they are at least somewhat more pessimistic about the economy.

Most executives expect the changes in the response to COVID-19 enacted by the new administration will be good for their businesses. Eighty-seven percent said substantial changes to pandemic mitigation efforts over the next two years were at least somewhat likely, with 68% saying those changes will have at least a moderate impact on their businesses. A further 71% of leaders expect financial relief for organizations to have at least a moderately positive impact on their businesses and 67% say financial relief for individuals will do the same.

“With the middle market business community feeling mostly positive in early 2021, the most important thing we can do now is continue the momentum on bipartisan legislation that will restore public health and get the economy back to firing on all cylinders,” said Neil Bradley, U.S. Chamber of Commerce executive vice president and chief policy officer. “The recent pandemic relief package illustrates how we can break partisan gridlock in the new Congress. It’s time to move forward on additional bipartisan issues like infrastructure to further spur growth, create more jobs and strengthen the economy for the long term.”

Policy Changes Across the Board

Middle market leaders expect to see policy changes on multiple issues, including the handling of the coronavirus, labor, health care, financial market reform, immigration, infrastructure and the environment. A majority agree a more vigorous approach to regulations will have at least a moderately positive impact on their businesses, including labor reform (61%), health care reform (60%), financial markets reform (58%), environmental regulation (55%) and immigration reform (51%). Fifty-eight percent of leaders reported spending on infrastructure projects, energy grids and communications networks would have at least a moderately positive impact on their businesses and a strong majority (86%) expect to see substantial changes in environmental regulation over the next two years.

“We anticipate a major policy initiative to create an infrastructure bank that will support the modernization of the nation’s crumbling infrastructure,” said Brusuelas. “The focus will revolve around what we call I2E, or the rebuilding of roads, bridges, transit, ports and waterways (‘Big I’); the expansion of digital broadband and the establishment of 5G (‘Little ’'); and the integration into all of the above smart and renewable resource use (E).”

Reversing Most, But Not All, National and International Regulations and Taxes
Middle market executives expect to see a reversal in a range of tax, regulatory, foreign affairs and trade policies under a Biden administration but don’t expect the use of tariffs, particularly on China, to be completely abandoned.

A strong majority (82%) anticipate changes to the tax code, with almost half (49%) saying those changes are somewhat likely and 33% saying the changes are very likely. A little over a quarter of those surveyed (27%) say those changes represent the greatest opportunity for their businesses while just under a quarter (22%) say those are the greatest risk.

Most leaders think taxes will increase at least somewhat significantly, though they have differing opinions on where those increases will come from. Sixty-four percent expect increases on federal corporate taxes, 58% say federal individual income taxes or capital gains taxes and 57% say increases will come through state and local taxes. Further, 76% expect it is at least somewhat likely an increase in the corporate tax rate will be imposed retroactively to January 1, 2021.

When it comes to international policy, there was a small divide between larger middle market businesses (defined as those with annual revenues of $50 million to $1 billion) and smaller middle market businesses (those with revenues from $10 million to just under $50 million). Fifteen percent of the larger businesses reported changes to non-tariff restrictions or barriers to foreign products were a greater risk to their business while only 5% of smaller businesses said the same.

A significant majority (85%) of middle market executives agree the Biden administration will likely reinstitute regulations that were eliminated or reduced under the Trump administration. Additionally, large swaths of those surveyed expect the United States to rejoin global efforts such as the World Health Organization (86%) and the Paris Climate Agreement (84%), enter new multilateral trade agreements (86%) and renegotiate the United States-Mexico-Canada Agreement (79%).

When it comes to foreign trade, 66% of middle market leaders anticipate substantial changes in tariffs on products from China, while 63% believe there will be substantial changes to tariffs on products from countries other than China.

“The longstanding trade war between the United States and China will not be unwound easily by the advent of a new administration in the White House,” said Brusuelas. “The impact of protracted tariffs has led to significant changes in supply chains worldwide, changes that are not easily reversed.”

The MMBI Election Pulse Survey data was gathered between November 19 and December 2, 2020.

About the RSM US Middle Market Business Index

RSM US LLP and the U.S. Chamber of Commerce have partnered to present the RSM US Middle Market Business Index (MMBI). It is based on research of middle market firms conducted by Harris Poll, which began in the first quarter of 2015. The survey is conducted four times a year, in the first month of each quarter: January, April, July and October. The survey panel consists of 700 middle market executives and is designed to accurately reflect conditions in the middle market.

Built in collaboration with Moody’s Analytics, the MMBI is borne out of the subset of questions in the survey that ask respondents to report the change in a variety of indicators. Respondents are asked a total of 20 questions patterned after those in other qualitative business surveys, such as those from the Institute of Supply Management and National Federation of Independent Businesses.

The 20 questions relate to changes in various measures of their business, such as revenues, profits, capital expenditures, hiring, employee compensation, prices paid, prices received and inventories. There are also questions that pertain to the economy and outlook, as well as to credit availability and borrowing. For 10 of the questions, respondents are asked to report the change from the previous quarter; for the other 10 they are asked to state the likely direction of these same indicators six months ahead.

The responses to each question are reported as diffusion indexes. The MMBI is a composite index computed as an equal weighted sum of the diffusion indexes for 10 survey questions plus 100 to keep the MMBI from becoming negative. A reading above 100 for the MMBI indicates that the middle market is generally expanding; below 100 indicates that it is generally contracting. The distance from 100 is indicative of the strength of the expansion or contraction.