Tax cuts flow to company shareholders and hourly workers
After U.S. companies got a big tax cut in December, a wave of announcements touting bonuses and wage increases for hourly workers raised hopes that the cash windfall would continue to flow to American workers.
But the sharing of the wealth was not as generous as hoped.
The first installments, such as one-time awards of $ 1,000 given to select workers at AT&T, Comcast and Walmart, and $ 2,500 in stock for Apple employees, have been hailed by the Trump administration and Republican members. of Congress. They touted the prices as examples of how the $ 1.5 trillion tax cut would result in higher wages for middle-class workers.
But the number of companies letting workers know they are receiving a bonus, raise or other form of financial compensation has slowed. Most of the extra money from tax savings goes into the pockets of shareholders through dividend increases and companies buying back their own shares in the hope of raising their price.
Analysis by Bank of America Merrill Lynch found that less than 45 of the 500 large companies that make up the Standard & Poor’s 500 stock index paid cash bonuses to their employees in the four months after it took effect. of the new tax law. According to the bank’s tally, about 150 – or about a third – of the S&P 500 companies publicly announced their tax cut plans, citing data up to March 27.
And while “investing in employees” was a “common theme,” according to BofA, only 30% of those 150 companies paid one-time bonuses. Almost 25% increase in wages. One in five has increased the 401 (k) and other compensation benefits. And 13% were added to benefits like paid parental leave.
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Money not shared with workers in the form of a pay rise has been or will be deployed in various ways, according to BofA’s analysis:
The amount of money benefiting shareholders has been considerable.
In the first three months of 2018, for example, investors received $ 109.2 billion in dividends, up more than 8% from the $ 100.9 billion received in the same one-year period. earlier, according to S&P Dow Jones Indices. In fact, the S&P 500’s quarterly dividend payments set a new record.
Likewise, JP Morgan estimates that U.S. companies could repurchase up to $ 800 billion of their own stock this year, up from $ 527 billion last year. The sharp rise in share buybacks, according to the bank, is largely due to the benefits of tax cuts.
And it is on the massive spending on dividends and share buybacks that criticism is rushing, because this use of the money benefits the rich and the shareholders of the company, rather than the working middle class. According to a recent study by New York University economics professor Edward Wolff, 84% of all stocks owned by Americans are held by the richest 10% of households.
“Old habits are long gone,” says Chris Rupkey, chief financial economist at MUGF, a financial services company with offices in New York City. “I would be surprised if a lot of the money from corporate tax cuts ends up in the pockets of working people.”
The reason? Companies, Rupkey says, are reluctant to increase their ongoing labor costs. He also argues that âeveryone has a bossâ and that companies âget byâ by paying their increased after-tax profits to shareholders.
In February, Senate Democrats released similar research that showed companies gave most of their tax profits to investors, not workers. At a press conference on February 7, they showed a slide stating that “Only two percent of adults say they received a bonus or increase because of the tax law.”
Most Americans, however, will benefit from less taxes taken from their paychecks due to the change in tax law that lowered individual rates.
The mismatch between what workers receive and what investors receive continues to be the subject of heated debate.
Americans for Tax Fairness, a liberal group that recently launched a website detailing what businesses are doing with their tax cuts, which cut the business rate to 21% from 35%, says workers are not getting their fair share.
The group’s data, drawn from company press releases, press reports, analysts and its own research, shows that only 6.3 million workers receive a one-time bonus or a pay rise linked to the cuts. This compares to a total US workforce of 155.2 million, according to the Bureau of Labor Statistics. ATF analysis shows that 126 companies received $ 60.8 billion in tax cuts in total, which it says is nine times the $ 6.5 billion workers received in bonuses and salary increases. Companies, according to their data, have spent 37 times more on share buybacks than on bonuses or salary increases since the law was enacted.
âPresident Trump and the Republicans have given huge tax cuts to big pharmaceuticals, big oil companies and the like, but companies are giving little – if nothing – back to working families,â said Frank Clemente, executive director of Americans for Tax Fairness.
This negative portrayal contrasts with the more upbeat takeaways from the conservative group, Americans For Tax Reform.
On his website, under the headline âList of good news from tax reform,â he praised the growing list of American employers – including small businesses and non-publicly traded ones – who are giving back. part of their tax revenue to workers.
“Thanks to the Tax Cuts and Jobs Act passed by the Republican Congress and enacted by President Trump,” he said, “505 companies (and more) are announcing increases in salary, bonuses, 401 (k) match increases, extensions and utilities Lower rates.