Republicans Didn't Promise Tax Reform Would Deliver A Smattering Of Bonuses

Bonuses are well and good, but the goal was wage gains over the long term.
Senate Majority Leader Mitch McConnell discusses the Republican tax plan on Dec. 19, 2017.
Senate Majority Leader Mitch McConnell discusses the Republican tax plan on Dec. 19, 2017.
Aaron Bernstein / Reuters

WASHINGTON ― Republicans have said bonus and raise announcements by companies like Walmart and Humana show that the GOP tax agenda is already boosting worker pay as advertised.

But Republicans had not promised there would be a scattered series of bonus announcements less than a month after President Donald Trump signed the tax bill into law. They said the bill’s corporate tax benefits would trickle down to workers over the long term.

Kevin Hassett, the top economic adviser to the president, provided the intellectual underpinning for the idea that corporate tax cuts would benefit workers in an October paper. Hassett argued that workers would earn at least $4,000 more per year as a result of corporations investing in new equipment that makes workers more productive, which would in turn make them more valuable.

“Effectively, reductions in the corporate tax rate incentivize corporations to pursue additional capital investments as their cost declines,” Hassett wrote. “Standard economic theory implies that the result of more productive and more sought-after labor is an increase in the price of labor, or worker wages.”

Hassett described the wage effects as “long-run outcomes,” not something that would happen right away. Economists generally agree that corporate tax cuts can benefit workers, though not as much as Hassett has claimed, and not as quickly as Republicans are now suggesting.

“It takes a long time,” Howard Gleckman, a senior fellow with the nonpartisan Tax Policy Center, said in an interview. “You don’t instantaneously get wage increases.”

Boeing, AT&T and Wells Fargo announced in December they would give their workers bonuses and pay raises specifically because of the tax reform that had been signed days earlier. If it wasn’t really because of tax reform, then why would they say it was?

“The cynical explanation is they have political motives,” Gleckman said, noting that AT&T needs the government to approve its acquisition of Time Warner. Boeing is a government contractor, and the Trump administration last year suggested it might reconsider fraud penalties imposed on Wells Fargo.

““This is opportunistic timing. The labor market’s gotten tighter. That causes employers to be nicer to employees.””

- Gregg Polsky, University of Georgia

Those are just three of several dozens of raise or bonus announcements that Republicans have been tracking, which could affect 2 million workers, or about 1.2 percent of the labor force. Republicans have amplified the message, which seems to cut against the wide array of expert analyses finding the tax bill benefits the rich more than the working class, not to mention the statements from corporate executives about using their tax windfall to buy back stock.

Tax bill aside, with unemployment plunging to 4.1 percent, there are fewer workers desperate for jobs, so employers are going to have to offer higher wages in order to attract and retain employees. The economy is at or near what economists call “full employment,” which is the lowest level of joblessness that doesn’t lead to price inflation. So companies that might have planned to raise wages anyway can put out a press release crediting Republican policies and at least get a pat on the back.

“This is public relations,” said Gregg Polsky, a tax professor at the University of Georgia. “This is opportunistic timing. The labor market’s gotten tighter. That causes employers to be nicer to employees.”

Rep. Peter Roskam (R-Ill.), who was closely involved in drafting the tax bill, called the spate of bonus and raise announcements “icing on the cake.”

“To give the employers credit, a lot of them are recognizing, ‘Look, this is so significant for us, we’ve got to make sure at the very beginning we’re communicating broadly there’s a benefit for our employees,’” Roskam told HuffPost.

Roskam did not credit the possibility that companies are using the tax bill for publicity. “If you starting chasing that type of cynicism, it’s very unsatisfying and it never ends,” he said.

It would make more sense to gauge possible impact of the tax bill by looking at what companies are spending on equipment or capital goods, said Dean Baker, a labor expert with the liberal Center for Economic and Policy Research.

“For their story to hold true, we should be seeing a very quick upturn in investment,” Baker said. The government’s data on nondefense capital goods orders for the month of December will come out on Jan. 26, and January data will be available late next month.

Another way of making Baker’s point: People should evaluate the policy by looking at data instead of at anecdotes.

This week, Humana announced bonuses and raises of an unspecified amount for an unspecified number of its employees. Senate Majority Leader Mitch McConnell (R-Ky.) hailed the news from the Senate floor, and a press release from House Majority Whip Steve Scalise (R-La.) called it the “Human(a) Face of Tax Reform.”

Spokespeople for the company did not respond to a HuffPost inquiry about whether the tax bill had led the company to reconsider laying off 5.7 percent of its workforce, or about 2,700 workers, which the firm announced it was doing in November.

According to the running tally kept by Scalise’s office, nearly 200 companies have announced bonuses and increased compensation specifically because of the tax bill.

“A business restructuring due to individual company performance is an entirely separate issue than having an influx of unexpected savings from tax reform that can be pumped back directly to their workforce,” Scalise spokeswoman Lauren Fine said.

Rep. John Yarmuth (D-Ky.) represents the Louisville area where Humana has its headquarters.

“What they’re doing with the bonuses is a small percentage of what they save from the tax cuts,” Yarmuth said. “I’m glad the workers are getting more money, but I’m not sure it will last.”

Travis Waldron contributed reporting.

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