Tuesday, January 23, 2018

Getting a raise from the tax bill?


Don't hold your breath. Since the passage of the bill anumber of companies have given bonuses to their workers but few have given raises. And expectations that corporations that have sat upon huge piles of cash investing in their companies or their workers may easily exceed reality.
For the most part, though, they are not indicative of the windfalls that companies are reaping from the $1.5 trillion tax law — and how much of that money that might trickle through to workers in the years to come.

Companies are acknowledging this in their fourth-quarter earnings reports and other financial disclosures, which earmark just a sliver of their future tax savings for direct and indirect investments in workers.

Bank of America’s bonuses will cost the bank $145 million in 2018, or about 5 percent of the nearly $2.7 billion in savings it is expected to reap in 2018 from a lower, 21 percent corporate tax rate. Apple’s bonuses will cost $300 million, a fraction of the $40 billion, at least, that the tech giant is saving from a single provision in the law, which allows it to return earnings held overseas at less than half the rate it would have paid under the old system.

And two days before Walmart snagged glowing headlines for handing out $400 million in bonuses and lifting its minimum wage at a cost of $300 million, the nation’s largest retailer by sales unveiled a plan to buy back company-issued debt. The cost of the buyback: $4 billion.

The gap between what companies are saving and how they are, so far, rewarding workers, doesn’t mean that the new law won’t eventually lead to substantial wage increases. Economists across the political spectrum agree it’s simply too soon to tell whether — and to what degree — that will happen.

The flurry of high-profile bonus announcements “are hard to interpret,” said Mihir Desai, an economist at Harvard Business School and Harvard Law School whose research supports the idea that corporate tax cuts lead to at least modest wage increases. “They may well be evidence for these gains, but just as well may be an example of savvy public relations. The reality is we’ll have to wait for a few years and good empirical work to really know the answer.”

Before Mr. Trump signed the tax bill in December, few companies had committed to rewarding workers if it passed. Since then, more than 200 have pledged bonuses, wage increases or other benefits for employees that are specifically tied to the new law, which includes deep cuts to business tax rates. The new law lowers the corporate rate to 21 percent, from a previous high of 35 percent, and it includes a 20 percent deduction for many owners of so-called pass-through companies, who pay taxes on their profits at individual income tax rates.

Republicans have celebrated the bonus announcements as part of a concerted party strategy to build public support for the new law. “Tax reform is working,” House Speaker Paul D. Ryan, Republican of Wisconsin, said on Thursday, before citing the Apple bonus announcement. “Workers are coming home and telling their families they got a bonus, or they got a raise, or they got better benefits.”

The bonus announcements are, in some ways, a relatively easy opportunity to generate positive headlines and, perhaps, curry favor with Mr. Trump.

“Certainly, a lot of what you’re seeing is bonuses, rather than wages. It’s a one-time thing — you don’t have to do it again. It’s political, obviously. It’s P.R.,” said Jim O’Sullivan, the chief United States economist at High Frequency Economics.
One time events and when time comes to give out raises, who will remember if they don't show up?

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