Tax cut savings flow to company stockholders, trickle to hourly workers

After U.S. corporations got a big tax cut in December, a flurry of announcements touting bonuses and pay raises for hourly employees raised hopes that the cash windfall would keep flowing down to American workers.

But the sharing of wealth hasn’t been as generous as hoped.

The early payouts, such as one-time awards of $1,000 given to certain workers at AT&T, Comcast and Walmart, and $2,500 in stock awards for Apple employees, were praised by the Trump administration and Republican members of Congress. They trumpeted the awards as examples of how the $1.5 trillion tax cut would result in bigger paychecks for middle-class employees.

But the number of companies letting workers know they are getting a bonus, raise or other form of financial compensation has slowed to a trickle. Most of the extra cash from tax savings is going into the pockets of stock shareholders through dividend increases and companies buying back their own stock in hopes of boosting its price.

A Bank of America Merrill Lynch analysis found that fewer than 45 of the 500 big companies that make up the broad Standard & Poor’s 500 stock index have paid out cash bonuses to their workers in the four months since the new tax law took effect. By the bank’s count, about 150 — or roughly a third — of S&P 500 companies have publicly announced their tax-cut spending plans, citing data through March 27.  

And while “investment in employees” was a “common theme,” according to BofA, just 30% of those 150 companies paid one-time bonuses. Nearly 25% increased wages. One in five boosted 401(k) and other compensation benefits. And 13% added to perks like paid parental leave.

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The money not shared with workers in the form of more pay has been deployed, or will be deployed, in a variety of ways, according to BofA’s analysis:

The amount of money benefiting shareholders has been sizable.

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 period a year earlier, according to S&P Dow Jones Indices. In fact, the S&P 500’s quarterly dividend payments set a new record. 

Similarly, J.P. Morgan estimates that U.S. companies could buy back as much as $800 billion of their own stock this year, up from $527 billion last year. The sharp rise in share repurchases, according to the bank, is due in large part to the benefits from tax cuts.

And it is the massive spending on dividends and share buybacks that critics pounce on, as this use of cash benefits the wealthy and company shareholders, rather than middle-class workers. A sizable 84% of all stocks owned by Americans are held by the wealthiest 10% of households, according to recent research by New York University economics professor Edward Wolff.  

“Old habits run deep,” says Chris Rupkey, chief financial economist at MUGF, a financial services firm with offices in New York. “I would be surprised if much of the corporate tax cut money ends up in workers’ pockets.”

The reason? Companies, Rupkey says, are reluctant to increase their permanent wage costs. He also argues that “everyone has a boss,” and that companies are “managing up” by paying out their increased after-tax profits to stockholders.

Senate Democrats back in February put out similar research that showed companies were giving the biggest part of their tax windfalls to investors and not workers. At a Feb. 7 news conference, they showed a slide stating that “Only two percent of adults say they’ve received a bonus or raise due to the tax law.” 

Most Americans, however, will benefit from fewer taxes taken out of their paychecks due to the tax law change that lowered individual rates.

The mismatch between what workers are getting and what investors are receiving continues to be a heated debate.

Americans for Tax Fairness, a liberal group that recently started a website detailing what corporations are doing with their tax cuts, which dropped the corporate rate to 21% from 35%, says workers are not getting their fair share.

The group’s data, culled from corporate news releases, media reports, analysts and its own research, show that only 6.3 million workers are getting a one-time bonus or pay hike tied to the cuts. That compares with a total U.S. workforce of 155.2 million, according to the Bureau of Labor Statistics. The ATF analysis shows 126 companies have received $60.8 billion in total tax cuts, which it claims is nine times more than the $6.5 billion workers have received in bonuses and pay increases. Corporations, their data show, have spent 37 times more on stock buybacks than worker bonuses or raises since the law was enacted.

“President Trump and Republicans gave huge tax cuts to big drug companies, big oil and other corporations, but corporations are giving back little – if anything – to working families,” says Frank Clemente, executive director of Americans for Tax Fairness.

That negative portrayal contrasts with the more upbeat takeaway from the conservative group, Americans For Tax Reform.

On its website, under the headline “List of Tax Reform Good News,” it lauds the growing list of U.S. employers — including smaller firms and ones that don’t trade publicly on stock exchanges — giving back some of their tax windfall to workers.

“Thanks to the Tax Cuts and Jobs Act Passed by the Republican Congress and Signed Into Law by President Trump,” it says, ”505 Companies (and counting) Announce Pay Raises, Bonuses, 401(k) Match Increases, Expansions, and Utility Rate Cuts.”