Corporate America Celebrated Tax Cuts by Laying Off Workers
Don't let a twisted and dishonest PR scheme by massive companies grateful for Trump's huge Christmas present distort the truth.
Left Image: Photo by Alex Wong/Getty Images. Right Image: iStock/Getty Images Plus.
Last week, Donald Trump appeared remotely on two giant monitors before the White House press corps to personally thank corporate America. “The historic tax cut I signed into law… is already delivering major economic gains,” the president boasted, ticking off a series of announcements from big business about one-time bonuses, 401(k) contributions, workforce and infrastructure investments, and even higher wages. “I want to thank all of the companies that worked so hard to do it.”
Could it be that all the naysayers, the economists and advocates and experts who expected Trump’s massive corporate tax cut to quickly get funneled into the pockets of the rich, were wrong? Will the tax cut really spur the kind of economic activity that will boost jobs and wages and lift up the ordinary worker?
No. But this may end up being the most aggressive corporate public relations scheme we’ve seen in America since a bunch of movie studios got together during the Great Depression to run attack ads smearing Upton Sinclair’s progressive campaign for governor of California. The money flowing to workers in these announcements are like a nickel in a tin can compared to the bounty rushing into corporate treasuries. In many cases, they seem to have been pre-planned prior to the tax bill, done to reap a tax write-off, or announced to mask layoffs elsewhere in the business.
Consider the one-time, $1,000 bonuses for employees that many companies, like Comcast and AT&T, have announced. First of all, one-time bonuses, while nice to have, are not wage increases. The promise of the tax cut was not that it would let companies throw a few bucks in the employee tip jar, but permanently raise pay. Bonuses don’t make up for stagnant wages, as Southwest Airlines’ mechanics union, which has been locked in a contract battle for over five years, told the company.
The Comcast and AT&T bonuses were also announced late last year, allowing them to be written off as a business expense in 2017. If a business gave a bonus in 2017, it went against the 35 percent corporate tax rate then in effect. If were to give one this year, the bonus would only go against the new 21 percent rate. In other words, it was cheaper for businesses to announce bonuses in December than January, suggesting we may not see much of their kind again.
But Comcast and AT&T in particular serve as the poster children for dishonesty in this matter. Because around the same time that they made a big show of rewarding employees with bonuses, both companies quietly engaged in layoffs. Comcast fired 500 members of its sales department before Christmas, and AT&T is eliminating “thousands” of jobs, according to its union, the Communications Workers of America. “We believe there's more than 4,000 people AT&T has (notified of layoffs) across the country,” Larry Robbins, vice president of CWA Local 4900, told the Indianapolis Daily Star.
Just to do the math on this, $1,000 bonuses to 200,000 AT&T workers is $200 million. Cancelling 4,000 jobs at the median US compensation of $59,000 per year (some of the workers affected likely earned less) would actually amount to a higher number, and unlike the bonuses, those layoffs are permanent. More to the point, any $1,000 bonus for workers is a drop in the ocean compared to chopping the corporate tax rate by 40 percent, as the Trump tax cuts will. AT&T, according to calculations from economist Dean Baker, will see $2.4 billion in annual savings from that tax cut, more than ten times the likely cost of its the one-time bonus. (Neither Comcast nor AT&T immediately responded to a request for comment.)
Then there are the vows to increase investment ringing down from the highest corridors of American business. Boeing, for example, announced $200 million in workforce-related investments last month; they also announced $100 million in charitable investments, which are tax-deductible. Southwest has also announced a “charitable investment,” also known as a tax deduction. Companies donate to charity all the time to pump up their public image and take tax benefits. And these particular donations don’t even come close to the size of the corporate tax cut.
If there are real and enduring upticks in corporate investment from the tax bill, it will emerge in forthcoming data, but recent history suggests we should be deeply skeptical. A 2004 tax holiday allowed businesses to bring $312 billion back from overseas at a 5.25 percent rate. But the top 15 companies that took advantage of the holiday cut 20,931 jobs, according to a Senate investigation. The money went not into investment, but executive compensation and shareholder payouts, such that even George W. Bush reportedly vowed to never do such a thing ever again.
But what about companies like Wells Fargo, which kicked up its entry-level wage to $15 an hour? Surely this is a good sign? It sure is, except Wells Fargo’s own spokesman said it had nothing to do with the tax bill. “We have been on a path to increasing the minimum hourly rate, having most recently increased it in January 2017,” spokesman Peter Gilchrist pointed out to the LA Times, only to change his mind a day later, saying it really was about the tax cut.
Gilchrist should have stuck with his initial statement. States around the country, including California, where Wells Fargo has its headquarters and many branches, are gradually increasing minimum wages to $15 an hour. Those laws, and companies like Target escalating their own wages to retain staff in a tight labor market, seem like a better bet for wage hikes than the Trump tax cuts.
By the way, we actually know what executives like those at Wells Fargo are thinking about the tax law, because the bank's CEO Tim Sloan told CNN Money the day the bill passed: “Is it our goal to increase return to our shareholders… yes. So our expectation should be that we will continue to increase our dividend and our share buybacks next year and the year after that and the year after that.”
Dividends, a flat payout of profits to shareholders, and buybacks, a more roundabout way of taking shares off the market and thereby increasing the stock price artificially, both reward investors. And in the first ten days after the Senate advanced its version of the tax bill December 2—when everyone knew it was likely that a big corporate tax cut would pass—companies announced $70.2 billion in stock buybacks. That included Boeing, announcer of planned workforce investments, with an additional $4 billion in buybacks; Bank of America, whose $5 billion buyback dwarfs its $1,000 one-time bonus to 145,000 workers; and JetBlue, whose $750 million in buybacks also came alongside a $1,000 bonus announcement.
But the real corporate face of the tax cut is Pfizer. The drugmaker is said to have among the largest stash of money of any corporation parked offshore, which under the tax law they can now bring back at a dramatically discounted rate. So how have they repaid workers since enjoying that windfall? They’ve announced a $10 billion buyback, an increased dividend, and the elimination of investment into research on Alzheimer’s and Parkinson’s disease, laying off 300 scientists and putting breakthroughs to fight those diseases further out of reach. (When reached for comment, Pfizer spokeswoman Neha Wadhwa told VICE that the research and shareholder payout decisions were "totally independent of tax reform," and that the company would decide how to react to the tax changes alongside its earnings statement later this month.)
In other words, these announcements are worse than a joke. They represent a deliberate strategy to curry favor with the public and President Trump while executives gorge themselves on tax cuts, most of which won’t trickle down to anyone. Corporations simply don’t make decisions based on taxes, and certainly not decisions to benefit workers over the long-term. These corporate PR departments are deceiving America to preserve an ideology of ultra-low taxes, and hoping nobody notices the truth.
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