EDITORIAL: Why so few workers got that pay bump from Trump’s corporate tax cut
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When President Donald Trump and Congress slashed taxes on corporations last year, they said they were doing the average working stiff a big favor.
You see, they explained, the bosses will take a lot of that extra money and raise your pay. Between wage hikes and bonuses, the Trump administration predicted, average household income would jump by at least $4,000.
“There really shouldn’t be much doubt about that,” a Trump economic advisor, Kevin Hassett, said then.
This being summer vacation time, maybe you’re not even reading this editorial because you’ve blown town with that extra four grand. Or you’re reading on your smartphone while sunbathing on the Riviera.
Good for you!
Or, like most Americans, maybe you’re still waiting for that big boost in pay.
In an editorial just a few days ago, we lamented a Supreme Court decision, Janus v. AFSCME, that threatens to gut labor unions. We saw the decision, which allows government employees to stop paying fees to the unions that work on their behalf, as part of a larger assault on the ability of working people to earn a decent living and retire with dignity.
Of the many ways in which this is happening, perhaps none is more offensive than the false promise that last year’s corporate tax cut — to just 21 percent from 35 percent — will lead to fatter paychecks for ordinary workers. We didn’t believe that back in December, when Congress approved the lower tax, and all evidence over the last six months says workers are benefiting hardly at all.
An April analysis of all Fortune 500 companies, by the advocacy group Americans for Tax Fairness, found that only 4.3 percent of workers will receive a one-time bonus or wage increase as a result of the corporate tax cut. A later analysis, by American Prospect magazine, found that total pay hikes and bonuses to workers as of mid-June totaled about $7 billion — just 9 percent of the $77 billion in tax cuts corporations have enjoyed.
So where’s the money going?
Disproportionately to the richest Americans, as corporations use the savings to buy back their own stock.
Corporate shareholders love stock buybacks because there usually is a temporary bump in the stock’s value — as word gets around of a buyback — and they can make a generous profit. Companies like buybacks, too, because reducing the number of shares on the market inflates the earnings per share. A company can look more profitable even when it’s not.
Stock buybacks only deepen income inequality, however, because a company’s gains — including those realized by the Trump tax cut — go to investors in the stock market, often beginning with the company’s own top executives.
Where the money doesn’t go is toward higher pay for ordinary workers, or toward worker training, or even toward hiring more workers.
Stock buybacks are nothing new. CNN Money reports that companies have spent $5.1 trillion on stock buybacks in the last 10 years. Between 2007 and 2016, S&P 500 companies spent 54 percent of their profits buying back their own shares.
But since the big corporate tax cut became law in December, buybacks have exploded. Already this year, CNN Money reports, American companies have spent $241 billion on buybacks.
Truth is, American corporations were sitting on record amounts of cash even before the tax cut. They could have used that money to raise workers’ pay but chose not to.
Meanwhile, wealth and income inequality in America continue to grow.
Between 2007 and 2016, the net worth for all but the top 10 percent of Americans declined, usually by double-digit amounts, according to MarketWatch, a publication of Dow Jones & Co. Hit hardest were the poorest 20 percent of Americans, whose net worth plummeted 29 percent.
But how did America’s top 10 percent fair?
They enjoyed a jump in wealth of 27 percent.
This is what happens when companies put their profits into higher executive pay, more generous dividends and stock buybacks — and put workers last.
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