WASHINGTON ― Ever since President Donald Trump signed a massive corporate tax cut into law last month, some of the biggest American companies have been touting pay increases as evidence of profits translating into meaningful gains for workers.
But there’s a problem with this spin: Nearly all of the companies involved, from Walmart to Wells Fargo, were wildly profitable before the legislation passed, and the benefits they’re now promoting constitute just a tiny fraction those profits. Compared with the massive gains analysts expect to accrue to shareholders as a result of the new tax law, these perks really are, as House Minority Leader Nancy Pelosi (D-Calif.) said earlier this month, little more than “crumbs.”
Whatever revenues corporations have left after paying for workers, supplies and other costs of doing business ― including taxes ― gets booked as corporate profit, enriching the company’s owners. Nothing in the tax code prior to the GOP overhaul prevented companies from turning over any of these profits to their employees in the form of higher wages or bonuses. But by slashing the corporate tax rate rom 35 percent to 21 percent, the bill did make sure that a much larger share stays with shareholders. For some companies, the difference could mean billions of dollars a year.
Consider Verizon, HuffPost’s parent company, which said it would give all its workers 50 shares, which will vest over two years. With about 161,000 employees, at $54 per share at the time of the announcement, the total benefit would come to about $434 million. Since the company said it would save $3.5 billion to $4 billion from the tax bill, the stock award represents somewhere between 10 percent and 28 percent of Verizon’s annual tax savings, and just 1.4 percent of the company’s profit in 2017.
Meanwhile, Walmart, the nation’s largest private employer, announced it would spend an additional $700 million over the next two years on employee pay, thanks to the tax bill. That’s less than 5 percent of the company’s most recent annual profit. Walmart announced the closure of 63 Sam’s Club stores, which will result in hundreds of layoffs, the same week.
“Companies are probably more interested in a short-term public relations boost than anything else,” said Matt Gardner, a senior fellow with the Institute on Taxation and Economic Policy. “We can’t know whether these decisions had been made prior to the tax cuts.”
None of this is preventing House Republicans from attempting to take credit for every dollar workers receive. “For the families who are living paycheck-to-paycheck, an increase in take-home-pay and a $1,000 bonus to start out the new year ― these are not crumbs,” House Speaker Paul Ryan (R-Wis.) said in an email blast.
House Majority Whip Steve Scalise (R-La.) is keeping an official running tally of more than 250 companies that have announced pay increases because of the tax bill. Of the 48 companies from the list that also ranked among the 500 biggest firms by revenue in 2017, only 18 are actually raising wages, as of Tuesday morning. Most are doling out small, one-time bonuses and improved retirement benefits. Some haven’t announced pay increases of any kind.
Eleven of the 18 firms that did announce raises are banks, mostly bumping hourly pay to $15 ― which they would likely be doing without the advantageous tax changes.
One of the banks on the GOP list, Capital One, didn’t mention the tax bill when it told employees their hourly pay would rise to $15. A bank spokesperson told HuffPost the raises had nothing to do with taxes.
“As we noted to our associates, over the past year, we’ve focused on raising base pay as part of our long term pay strategy,” the spokesperson said. “Seeing top competitors move toward a minimum wage of $15/hour created an optimal opportunity for us to accelerate our pay strategy so that we can continue to maintain our competitive edge in attracting and retaining great talent.”
In other words, the Capital One pay increase had more to do with labor market conditions than a desire to share tax bill savings. The median hourly pay for a bank teller in 2016 was $13.10, according to the Bureau of Labor Statistics, and several banks had been slowly raising teller pay of late. In its announcement celebrating the tax bill, PNC acknowledged that its new $15-an-hour minimum wage would complete a “goal that has been underway for some time.” In their announcements, Wells Fargo, JPMorgan, SunTrust, BB&T, and U.S. Bancorp all credited the tax bill for moving with their peers to a $15 minimum wage.
SunTrust also said it would hand out $1,000 employee bonuses ― but only to workers who completed a “financial fitness program.” Like other banks, SunTrust is raising its minimum wage to $15 an hour. The company also said it would offer unspecified “merit based pay increases for certain other hourly teammates.” SunTrust notched $2.3 billion in earnings in 2017.
Neither Bank of America nor American Express, which the GOP also listed as evidence that “tax reform works,” are raising wages as a result of the bill. Bank of America announced that it will pay a one-time bonus of $1,000 to 145,000 workers ― a total of less than 1 percent of the company’s $18.2 billion profit from 2017 alone. American Express said it would make an unspecified “incremental contribution to our employee profit-sharing plans.”
Though Republicans cite Hartford Insurance Group’s plan to give a $1,000 bonus to 9,500 employees ― an amount equal to about 3 percent of the dividends the company pays out each year ― the company’s CEO sounded ambivalent about the overall consequences of the tax bill itself, worrying it would spur a “race to the bottom” in tax policy around the world.
“I think we need to ultimately still recognize that the governments, the states need a certain percentage of revenue that supports basic goods and services,” Christopher Swift said at a Connecticut Business and Industry Association conference.
It’s possible the tax law itself created an incentive for companies to pay bonuses before the end of their fiscal years, which for some firms match the calendar year and for others extend through February. Since wages are deducted from a corporation’s taxable income, and the corporate tax rate is sharply lower for fiscal 2018, firms have an incentive to boost compensation earlier in order to reduce the amount of income subject to the higher rate.
“At the end of the day, total compensation for workers may be about the same as it would otherwise be, but the corporation gets tax savings from making the payment sooner rather than later,” Daniel Hemel of the University of Chicago law school and David Kamin of the New York University law school wrote in a blog post on Saturday.
Several companies said last fall that they’d use a tax windfall for stock dividends and buybacks, not for higher wages, simply converting it into shareholder wealth. But Republicans insisted workers would eventually benefit from the law. White House economic adviser Kevin Hassett wrote in an October paper that a lower corporate tax rate would spur investment that would ultimately result in wage increases of at least $4,000 annually. The wage hikes weren’t supposed to spontaneously appear in press releases; the theory is that companies would make new capital investments that would eventually make workers more productive, and ultimately more valuable.
If the tax bill is sparking increased investment, it’s probably too soon to tell. One influential analysis, by the financial firm Moody’s, said not to expect a surge.
“We do not expect a meaningful boost to business investment,” Moody’s analysts said in a report last week, arguing that most companies would use their increased profits to purchase shares of their own stock, enriching company owners, or by just paying off debt more quickly.
Dean Baker, a labor expert with the Center for Economic and Policy Research, said the lack of raises among the corporate announcements suggested the new tax law hadn’t really altered the labor market.
“The fact they’re giving bonuses indicates they don’t feel confident enough the tax cut’s changing the market environment where they will have to raise wages,” Baker said.
This article has been updated to include a comment from Daniel Hemel and David Kamin.
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