by David Haggith, The Great Recession Blog:
No, the Trump tax breaks for major corporations are not going to bonuses and wage increases. Sure we’ve seen some token $1,000 bonuses go out to laborers with hyuge orchestrated fanfare. The stint of articles you saw all over the media earlier in the year about those bonuses originated from an organized PR campaign run by a conservative tax group, and have mostly now ended. Americans for Tax Reform, headed by Grover Norquist, encouraged companies at the start of the year to announce their distribution of tax savings to the lower rungs of personnel as a way of selling the Trump tax breaks after the fact. So far as I know, they are still encouraging that, but there isn’t much for them to report.
Even Republican Senator Marco Rubio, who voted for the Trump Tax Cuts as they stand now and who bills himself as a Reaganite, says there is no evidence that happy corporations are sharing the wealth with their workers:
“There is still a lot of thinking on the right that if big corporations are happy, they’re going to take the money they’re saving and reinvest it in American workers,” he says. “In fact they bought back shares, a few gave out bonuses; there’s no evidence whatsoever that the money’s been massively poured back into the American worker.” (The Economist)
Corporations have never given anything to workers that they weren’t forced to give, whether because of collective bargaining, the need to compete in a tough labor market or government mandates … or as a public-relations necessity. Anyone who thought corporate boards or CEOs were going to let some tax savings trickle down because they have enough money now to share the wealth a little has had no experience with corporations. Labor gets nothing that it doesn’t fight and bargain hard for in full Trumpian style.
You might have asked as I did why Republicans were talking at the beginning of this year about the “need to sell the tax cuts.” Why do you need to sell something after you’ve already passed it? Especially something that people naturally like! The only answers I could come up with were to stem the public outcry over the disproportional benefits to the top 1%, to dull the arguments of labor, and mostly to keep people believing in trickle-down economics so Republicans can give another big cut to the top 1% again someday.
Stock buyback bonanzas all over the board
Exactly, as I predicted last year, we now KNOW that the main flow of tax-break money has been into stock buybacks that make CEOs and their board members rich:
The Trump tax cuts are taking full effect. Corporations will pay $60 billion less in taxes this year. It appears they are taking all $60 billion in savings, borrowing another $80 billion from Wall Street, and buying back their own stock at near all-time high prices. If you thought the narrative about corporations using their tax savings to invest in new facilities and hiring thousands of new employees was going to happen, you haven’t been paying attention to how things work in the real world. [Instead, they are] pumping up the salaries and bonuses of top corporate executives. These sociopaths don’t give a crap about their shareholders, employees, or customers. Look at the amount of stock they bought back in 2007, just before the greatest financial collapse in modern history. (The Burning Platform)
And what are these corporate execs doing with their own money? They’re selling their own stocks into these buybacks.
Insider selling of their company stock is at record levels. The “smart money” is corporate insiders who know what is really happening inside their companies. As you can see, they knew what was happening in 2000 and 2007 as they bailed out before the stock market tanked. Observe what they are doing now.
You might recall me pointing that out early this year, too.
Bloomberg found that 60% of tax-cut savings will go to corporate share buybacks and 15% to workers. Morgan Stanley found that percentage for the workers was too high and projected that 13% will go to workers. Just Capital found Morgan Stanley’s number too high, too, and said that 6% will make it way to workers in the form of pay raises, bonuses or benefits. With 80% of stocks being owned by the top 10% in society, it’s not hard to see that all the money is pooling at the top. It’s a darn small trickle down from that congealed pool … as has always been the case.
You may recall my writing here that, if the Trump administration truly wanted to make corporate tax savings go to capital investment and to workers, it would have placed a limit against doing any stock buybacks for two years if a corporation opts for the lower tax rate. (Buybacks used to be illegal, and should still be, as they are regularly used to milk corporations of all their energy in order to make current stock owners rich while making the cooperation poorer, less adapted for the future, and less creative.)
General Electric dies from blood-sucking buybacks
General Electric makes a good current newsworthy example. Having engaged in $24 billion in buybacks in 2016 and 2017, this oldest stock on the Dow Jones Industrial Average was unceremoniously removed last week for being a failing dinosaur. It’s bones have been picked clean in $24 billion bites that were largely out of the company’s cash belly (with the rest achieved by adding to the corporation’s debt burden). That money would have served the company better if spent on creative development, rather than on making blood-sucking board members richer:
“The root problem at GE — and why the stock is where it is — is poor capital allocation,” said RBC Capital Markets analyst Deane Dray. Shareholders normally love buybacks because they make shares scarcer and inflate a key measure of corporate profitability. “What did they get for it? Look where the stock is today,” said Dray. (Money)
Today, GE’s stock is worth less than before the buybacks! In fact, it’s almost just worthless. The buybacks happened at $30 a share. GE’s closing last week, after being stripped of its Dow honors, was at an emaciated $13 a share. The world’s longest-standing titan of heavy industry is on its way to becoming a penny stock, thanks to short-cycle thinking, self-centered, uncreative, unimaginative, morons that care only about pumping up short-term stock values.
According to GE’s CEO, however, decisions were “always made with the long-term interests of the company in mind.” Can you swallow that and not gag? Maybe they were just made by stockholders on the board sucking the last drops of blood out of old brontosaurus in order to buy back their own shares before the behemoth lays down in the fossilizing muds of time and dies. (Not saying I know that, but it’s a reasonable question.) Ask yourself why board members deserve any increase of wealth from stock buybacks when they are presiding over the demise of the company over which they are supposed to be stewards!
Ironically, GE is now turning out the lights by selling off its iconic lightbulb business and is laying off 12,000 workers.
Some analysts have even suggested GE could have to reverse itself completely by selling shares to the public to raise cash. GE has said it’s not considering that.
Of course not. It doesn’t fit the self-saving, parasitic, instant interests of board members who perch on the old beast like pterodactyls, eating the meat of their own company — a practice made legal when buybacks were made legal.
Cowen analyst Gautam Khanna summed it up this way: “Poor capital allocation, bad acquisitions, poor share repurchases at higher prices and unsustainably high dividends.”
That certainly sounds like a scenario where stock holders might be buying back their own personal shares while prices were good (making sure prices are good by driving them temporarily higher via buybacks that use the company’s own cash), knowing they’re going to let the company sink into the Wall Street tar pits once they’ve depleted that money and loaded up all the debt they can. Why should these people who are supposed to be stewards of the corporation be allowed to feast on the beast when they are making such bad decisions. (Decisions that are not bad for their personal short-term interest, but bad for everyone else.) Doesn’t sound to me like they were looking for ways to save those 15,000 workers they fired by investing the money in new and creative fields.
Jonathan Macey, a corporate law and finance professor at Yale Law School, defended GE’s buybacks, albeit in a backhanded way. “That’s a poster child of a company that should be returning cash to shareholders — because they obviously don’t know what to do with it,” he said.
That’s another way of looking at it: they’re returning the shareholders money because they don’t know how to make the manufacturer of jet engines fly any longer, so they don’t deserve to keep the shareholder’s money. (Speaking of which, GE did, at least, ground the private plane they used to fly former CEO Immelt all around the world.) Let’s hope someone investigates whether some inside investors got more money back than others.
John Flannery, who became CEO last year, said in January that the company will “maintain a disciplined financial policy” by raising cash and lowering debt. In his annual shareholder letter, Flannery said GE has added new measures to better evaluate the “risk and return” of decisions like dividends and share buybacks.
Here’s an idea for him. Make buybacks illegal again. Force shareholders (especially those on the board) to make money by actually running a company, rather than ruining it for their own benefit.
Corporate America is on track for a record-breaking year for stock buybacks thanks to the cash windfall from President Trump’s tax law.
Christmas bonuses bazaar (and a bit bizarre)
The misleading thing about bonuses is that they are a one off, not nearly as valuable as a raise in wages. Raises are hard to take back later on.
It seems to me that a $1,000 bonus at Christmastime is not that uncommon of a deal. So, some of the reported bonuses, coming as they did in December, could have been coming anyway; but crediting them to the Trump Tax Cuts served a purpose of smoothing over the tax cuts to the rich. I’ve worked blue-collar jobs in the past that included Christmas bonuses ranging between $500 and $1,000. So, the amount is even in keeping with company Christmas bonuses in a decent year.
Many of the bonuses were payoffs for layoffs. They were PR to create some positive spin at a time when the same companies promising bonuses announced layoffs the very next day. In such cases, the bonus is nothing more of a minuscule severance package. Obviously, a little public goodwill from announcing charitable bonuses from the tax cuts can help soften the reputational dent from the layoffs at Christmastime or to start of the new year.
One of those companies that were quick to boast about bonuses to the rank and file (AT&T) announced the very next day it was firing many of the people who would be receiving the $1,000 bonuses. Clearly they wanted to get a little positive PR out there ahead of the pink-slip news.
AT&T chose to downsize at Christmastime — the time of year when a layoff carries the most sting. Their heartless timing could have been because of a merger they were working on that the Trump administration was opposed to. The Donald loves praise and PR, so an act that made the Trump Tax Cuts look immediately successful couldn’t hurt AT&T’s cause. Not saying that was the reason for a fact, but “here’s your bonus, and here’s your pink slip” is an odd kind of bonus to get all boasty about.
I would consider AT&T’s $1,000, not even a Christmas bonus, much less a sharing of anticipated tax savings. It was simply a bite-size severance package made with perhaps a little wistful hope that it would create better feelings in the Trump Admin. toward AT&T’s merger hopes.