Tax cut scoreboard: Workers $6 billion; Shareholders $171 billion

It's raining stock buybacks on Wall Street -- thanks to President Trump's massive corporate tax cuts.The White...

Posted: Feb 16, 2018 12:36 PM
Updated: Feb 16, 2018 12:36 PM

It's raining stock buybacks on Wall Street -- thanks to President Trump's massive corporate tax cuts.

The White House has celebrated the tax cut bonuses unveiled by the likes of Walmart, Bank of America and Disney.

Yet shareholders, not workers, are far bigger direct winners from the Tax Cuts and Jobs Act of 2017.

American companies have lavished Wall Street with $171 billion of stock buyback announcements so far this year, according to research firm Birinyi Associates. That's a record-high for this point of the year and more than double the $76 billion that Corporate America disclosed at the same point of 2017.

Wall Street loves buybacks because they tend to boost the share price in part by inflating a key measure of profitability. In just the past three days, Cisco, Pepsi and drug maker AbbVie have promised a total of $50 billion of buybacks.

"It's the largest ever -- and nothing has really changed, except the tax law," said Jeffrey Rubin, director of research at Birinyi Associates.

Related: Only 13% of business' tax cuts are going to workers, survey says

Under pressure from Washington, dozens of major companies have decided to share the tax windfall with workers -- or at least some of it. Trump said during his State of the Union that roughly three million workers have received tax cut bonuses. Other companies like Wells Fargo have raised the minimum wage for workers, providing a lasting boost in pay.

But the amount of money allocated so far on bonuses and wage hikes pales in comparison with Wall Street's buyback bonanza.

S&P 500 companies have devoted about $5.6 billion to bonuses and wage hikes because of the tax law, according to research from academics Rick Wartzman and William Lazonick as well as the Academic-Industry Research Network. The group added up commitments from the 50 companies in the S&P 500 that had announced plans to reward workers through February 15.

"Our worst nightmare is coming true," said Frank Clemente, executive editor of Americans for Tax Fairness, a group that fights for progressive tax reform. "We predicted that the lion's share of the benefits of this tax cut would go to already-wealthy shareholders and CEOs, not to a company's workers."

A survey of Morgan Stanley analysts released last week found that just 13% of companies' tax cut savings will go to pay raises, bonuses and employee benefits. 43% will reward investors with stock buybacks and dividends.

The tax-inspired buyback boom may just be getting started. Bank of America recently predicted that S&P 500 companies will use repatriated foreign profits to buy back about $450 billion of stock.

The new law gives companies a tax break -- paying between 8% and 15.5% instead of the usual 35% -- to bring money sitting overseas back to the United States. That's in addition to the savings created by the steep decline in the corporate tax rate to 21% from 35%.

Related: Blankfein: Odds of 'bad outcome' for economy have gone up

Workers have benefited in other ways from the tax law. For instance, Visa and Aflac have boosted their 401(k) matching programs after the tax overhaul. Boeing has promised to invest $300 million on workers through training, upgraded facilities and charitable giving.

Workers can also benefit indirectly from stock buybacks if shareholders end up using their winnings to make investments that create new jobs.

"It frees up capital to go back into the economy. What good does $2 trillion sitting offshore in tech companies' accounts do?" asked Nicholas Colas, co-founder of DataTrek Research.

But some companies wishing to use their tax savings on new factories or hiring workers may not have seen enough evidence that expansion is warranted.

"Just because you have the cash coming in doesn't magically create opportunities to invest," said Colas.

Colas also said that buybacks provide an important signal that can boost stock prices. "When stock prices rise, they inspire more confidence and confidence leads to more hiring and wage increases," he said.

Critics of buybacks note that America's wealthiest families tend to benefit disproportionately from a booming stock market -- and thus buybacks.

The top 10% of households owned 84% of all stocks in 2016, according to paper published last year by NYU professor Edward Wolff. The richest 1% owned 40% of stocks by themselves.

"If you want to understand why there is such extreme inequality, this use of corporate cash is a big part of it," said Lazonick, who is a professor at the University of Massachusetts Lowell.

Wartzman, director of Claremont Graduate University's KH Moon Center for a Functioning Society, argues that there are more productive uses of capital than buybacks. He suggested boosting wages, ramping up benefits and training workers.

"It's not to say shareholders shouldn't get a piece of the pie," he said, "but why such an inordinate piece?"

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 250869

Reported Deaths: 5481
CountyCasesDeaths
DeSoto16841171
Hinds15890312
Harrison13037191
Rankin10439205
Jackson10128177
Lee8721135
Madison8071160
Jones6166108
Forrest5870117
Lauderdale5724177
Lowndes5238109
Lafayette486192
Lamar475363
Washington4734122
Bolivar3941106
Oktibbeha388179
Panola360475
Pontotoc358752
Monroe3487103
Warren337895
Union337457
Marshall336065
Neshoba3325150
Pearl River319492
Leflore2980104
Lincoln293385
Sunflower277569
Tate266659
Alcorn260651
Itawamba258858
Pike258176
Hancock253557
Prentiss242450
Scott241043
Yazoo237754
Copiah237449
Tippah236246
Simpson232367
Leake227864
Coahoma223154
Grenada215770
Covington208871
Marion206171
Adams201666
Winston198061
George197438
Wayne196130
Attala191658
Newton186542
Chickasaw181243
Tishomingo179659
Holmes167867
Jasper165134
Clay156732
Stone140218
Tallahatchie138234
Clarke136460
Calhoun133321
Smith118823
Yalobusha113834
Walthall111136
Noxubee109622
Greene108929
Montgomery108134
Carroll103721
Lawrence101217
Perry99131
Amite96425
Webster90624
Claiborne85125
Tunica84521
Jefferson Davis83825
Humphreys81524
Benton80323
Kemper75720
Quitman6758
Franklin65315
Choctaw59613
Wilkinson58125
Jefferson53019
Sharkey42417
Issaquena1586
Unassigned00

Alabama Coronavirus Cases

Cases: 417528

Reported Deaths: 6030
CountyCasesDeaths
Jefferson61313888
Mobile29768542
Madison26637185
Tuscaloosa20580268
Montgomery18696304
Shelby18310113
Baldwin16002179
Lee12261101
Morgan12093112
Etowah11604157
Calhoun10982200
Marshall10108107
Houston8474129
Cullman7960104
Limestone790174
Elmore7723101
DeKalb764697
St. Clair7460120
Lauderdale745183
Talladega6102108
Walker5852174
Jackson574441
Blount526483
Colbert525670
Autauga510355
Coffee434256
Dale391081
Franklin363445
Chilton333565
Covington326167
Russell323810
Escambia312442
Dallas300296
Clarke278233
Chambers277869
Tallapoosa2599107
Pike245829
Marion240549
Lawrence240447
Winston223835
Bibb213047
Geneva197431
Marengo197329
Pickens195231
Hale173742
Barbour171236
Butler167958
Fayette166026
Cherokee159630
Henry151119
Monroe144417
Randolph138535
Washington136526
Clay125246
Crenshaw118044
Lamar116619
Cleburne116023
Macon113335
Lowndes108735
Wilcox101221
Bullock98128
Perry95419
Conecuh92920
Sumter88726
Greene75323
Coosa60414
Choctaw51224
Out of AL00
Unassigned00
Tupelo
Cloudy
37° wxIcon
Hi: 47° Lo: 32°
Feels Like: 37°
Columbus
Partly Cloudy
33° wxIcon
Hi: 49° Lo: 31°
Feels Like: 33°
Oxford
Partly Cloudy
36° wxIcon
Hi: 45° Lo: 31°
Feels Like: 36°
Starkville
Partly Cloudy
30° wxIcon
Hi: 49° Lo: 30°
Feels Like: 30°
WTVA Radar
WTVA Temperatures
WTVA Severe Weather