-- Published: Monday, 25 June 2018 | Print | Disqus
By David Haggith
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 encourage 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 silence labor a little bit, and mostly to keep people believing in trickle-down economics so Republicans can give another big cut to the top 1% again sometime.
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.
Of course, job-destroying mergers are the other type of business activity that I said in an earlier article would actually prove to be a much bigger effect from the Trump tax cuts than wage increases. Given large piles of tax savings, companies that slaver over the chance to look bigger would much prefer to use the money to conglomerate and cut jobs through hoped-for efficiency gains than use it to create new products in search of new customers.
In similar style to AT&T, Lowe’s announced $1,000 bonuses at the start of the year, and then surprised employees with unannounced store closures and layoffs:
There is certainly no concern for humanity in such surprise layoffs, but it also does not appear that tax savings are being used to reposition human resources for expansion elsewhere.
A spokesperson for Lowe’s explained in an email, “We believe employees impacted by decisions personally affecting them and their families should learn news directly from the company. To help support employees, company leadership at all levels, including the CEO, communicated directly with employees.
Uh, apparently those in the video didn’t get the memo.
Lowe’s CEO, Robert Niblock (a.ka. Nip Block, Knob Lick, or Nipple Lock), said he would be flying economy class from now on and cutting executive benefits in order to spend more money hiring customer service staff on the floor. Why didn’t he just keep on those guys in the video by using some of those tax savings to move those he fired to whatever stores are going to get the additional staffing. Even in thriving housing markets like Seattle in one of Seattle’s wealthiest suburbs, Lowe’s has laid off hundreds of employees.
Last year Lowe’s laid off 2,400 assistant store managers. This could all be smart restructuring, as Lowe’s claims, or it could be acts of desperation. Regardless, it does not appear the tax cuts are creating jobs at Lowe’s as more employees seem to be leaving out the back door than coming in new at the front.
Walmart, too, announced pay raises for its employees, and then the very same day announced the closure of 63 Sam’s Club stores. It has also announced thousands of layoffs for 2018.
I’m not saying unprofitable stores should remain open just so people can keep their jobs; but I am saying the timing of some of these bonus announcements, which Walmart’s CEO also tagged to the tax cuts, looks like they have a lot more to do with creating some positive news in the same cycle when the thousands of terminations are announced.
Wage increases were coming regardless of the Trump Tax Cuts
When you look at Walmart’s statement that, as a result of the tax cuts, it is raising wages for bottom-tier employees to $11 per hour, you have to recognize that much of that was already being mandated by the labor market as well as by governmental changes to minimum wage laws at the municipal level that make $11 an illegal low wage in many urban areas.
As a person who has done some corporate hiring, I know that $11 per hour usually does not get you a good selection of employees. Most of what you get applying at that level and even a little higher than that are the people no one else will hire. That’s just the facts. Even in a rural area, most of what I saw at that rate were people who hadn’t held any job for longer than a year or who had a criminal record or appeared for interviews with blatantly obvious drug or acolhol problems, reeking of booze when they entered my office. (That’s not to disparage anyone who works at that level; there are some good ones of course, but not enough to staff a Walmart store. And I didn’t hire at that level by choice. I just had a tightfisted board that I had to wrestle my way up to being able to offering better pay.) Walmart’s boasted $11 per hour is about what I’d pay a high-school kid to mow my lawn in the summer!
Wells Fargo announced right after the tax cuts that it would raise its minimum wage to $15/hour as a result of the Trump Tax Cuts. However … JPMorgan had already raised its minimum wage to that same level prior to passage of the tax cuts. So, Wells may have been crediting the tax cuts for a change that was really forced by the competition. After all, does Wells want lower-grade employees than JP?
By now you’ve heard many times that the labor market, already tight by the end of the Obama era, is getting so tight that employers claim to be having a hard time getting workers. If this is true, why haven’t wages gone up? Are employers so incredibly tightfisted about sharing the tax savings that they won’t even raise wages when they are griping that same day about how hard it is to find good help? Wages have seen precious little increase for the sake of attracting “difficult to find” employees or for the sake of holding on to the ones companies already have. Yeah, it’s hard to find good help when you’re not even willing to pay what it takes to get bad help.
So, why aren’t companies putting the Trump Tax Cuts to such good use if the labor market is so tight? Even without the tax cuts, one would have expected such a tight labor market to create more wage increases than the number that have been attributed to the tax cuts. Yet, real wages (adjusted for inflation) this May went up only 0.1% (month on month) according to Trump’s own Department of Lying Statistics. In May of 2017, they went up 0.3%. In April of this year, they didn’t go up at all. In March they went up 0.3%, but that was coming off a January when they dropped 0.3% followed by a February when they dropped 0.1%. Year on year from May to May, real wages held completely flat. In fact, when narrowed down to just non-supervisory employees, real wages dropped a tick from last May to this May. Real wages didn’t even look this flat in years six and seven of the Obama epoch.
You can see it for yourself:
Even though wages have held flat, stock buybacks due to the Trump Tax Cuts burst into full flame months ago; so, where are these much vaunted wage increases that we were promised?
Normally, when the unemployment rate stands as low as it does currently, wages rise somewhere between 3.5% and 4.5% a year. That is due to labor tightness and inflation. Now, with the supposed extra kick of the multifaceted Trump corporate tax cuts, wage growth has stalled. Even the most optimistic reports of total compensation (wages plus benefits) before factoring inflation show compensation growth at only 2.8% annually. Apparently, the tax cuts are hardly an accelerant for the wage burn.
In fact, an unusually high 14% of all workers have still not received any pay raise since the official end of the Great Recession nine years ago! Those people would have to get a 15% pay raise just to catch back up with inflation over those lost years.
Small bonuses are a smokescreen for burlier bonuses at the top
Note that the NGO that has been publicizing the bonuses through info distributed to the media — Americans for Tax Reform — has been completely silent about the size of bonuses companies are giving to their executives. (You can read a little about Norquists’ grand PR effort here.) I think the bonuses at the bottom are also a smoke screen for obscene bonuses at the top. Big bonuses to CEOs and other top execs tend to happen every year, however; while the ones down at the bottom … not so much.
In some ways, it is almost funny to read the publicity rush that went out right after the tax cuts. Michael Goodwin wrote such a puff piece in the more conservative New York Post,
Not that they needed one, but progressive wing nuts and their fellow travelers are getting another reason to hate President Trump. He’s proving that capitalism works. The president’s policies of cutting high taxes and excessive regulations are sparking a stock market surge and soaring economic confidence.
Really? Goodwin published his effluent of praise about the effectiveness of Trump’s tax policy on January 27th when stocks had been soaring throughout the month. We all know what happened the very next trading day after this was published. Stocks started to drop and then fell off a cliff for more than a month, and the stock market hasn’t recovered since. Goodwin criticized the wing nuts who don’t believe Trump’s plans would work as promised just one day too soon, making himself look like a wing nut.
You could have read (or did read) about how these pipe dreams for the Trump Tax Cuts would not materialize for 99% of America on my own blog or in many articles at Zero Hedge, or you could have even read it predicted by pro-Wall street information sources like Moody’s:
The U.S. tax bill signed into law in December will have a limited effect on the U.S. economy, as companies are unlikely to spend their tax savings on growth initiatives while the tax cut for the wealthy will not trickle down…. “We do not expect a meaningful boost to business investment because U.S. nonfinancial companies will likely prioritize share buybacks, M&A and paying down existing debt.”
That outcome is exactly what I had been predicting. These supply-side tax cuts never trickle down. It’s been a thirty-year lie that they ever will; and if you keep believing the lie (if you ever have), you either live in among the upper strata that the lie serves, or you deserve to remain poor all of your life for being tricked by it three times now. I’ve merely waited until enough information was in this year and a reasonable amount of time had passed from when I made my predictions last year to state my case that they are proven true. That’s my story, and I’ve been sticking to it ever since. The worst, according to Moody’s in the article quoted above, is certainly yet to come.
While several companies rushed in similar style to brag about what they were going to give to middle-class Joe and Josephine at year’s end, not a single one of them were as excited about announcing the size of executive bonuses this year. They wanted to keep all talk about the tax-break bonuses centered on the middle class. I’m pretty sure that for every one-thousand average souls who got a thousand bucks, there is a top-tier exec in the company who is getting a million-dollar bonus.
Jamie Dimon of JPMorgan Chase, for example, got a tidy little 4% increase on the $27.2 million he received for his services a year earlier. The Wall Street Journal listed 29 CEOs of the financial world with a total pay package of $10,000,000 or more. Median pay for bankster CEOs matched the median pay of all CEOs in the S&P 500. This year, it’s harder to find information about CEO pay increases.
Dimon’s raise last year was nothing. Citigroup’s CEO got a nice 48% raise. I guess they had to give him a big boost to get him up near Demon’s league. Citi’s Corbat got the big boost for overseeing a 25% jump in share value last year. A large part of that was due to stock buybacks. The rest came from Trump’s corporate tax cuts.
Citi has been buying back as much as 74 million shares a quarter. The company returned more than 100% of net income to shareholders through buybacks and dividends, and it has many more planned to come. No wonder Corbat is popular. It won’t be long, and we’ll be reading about Citi’s spectacular collapse because the best banksters know that to be worthy of the really big bucks they have to break their banks in order to qualify for free government money.
Citi’s stock is rising, but so are its operating costs and net credit losses. The credit losses will mount much faster now that emerging markets are crumbling because Citi has a very high exposure in high-risk emerging markets. Citigroup maintains the highest earnings per share of any American bank but only because it keeps cutting the number of shares in that denominator with massive buybacks. It’s essentially putting its money into buying itself out.
Goldman’s executives got their sachs of gold early (at the end of 2017) thanks to the tax changes — almost a $100 million worth. That number, of course, includes Goldman CEO, Lloyd Blankenstein. Netflix execs were happy, too, as the new tax laws caused Netflix to change executive compensation from performance bonuses to increases in guaranteed salary. While corporations wrote about these changes as something they were pressed to do to by the incoming law, I’m sure all their executives loved the earlier payments and the changes in how they get paid. Apparently, executives do recognize that people would rather have a pay increase than a bonus … at least, when it comes to themselves. A pay increase is a lot more solid.
What a fine and beautiful world … if you’re a big bankster.
CEOs earn on average 140 times more than the typical worker. Thank God they keep too many crumbs from feeding the worthless souls who keep the company running at the bottom while they tap it off the top. Thank Trump these guys are being deregulated because they are not getting fat enough fast enough. They need more cheeseburgers and Kochs.
News of bonuses was bellicose but brief
By the end of January, only eighteen (18%) of the Fortune 100 companies were listed by ATR as having given some benefit to their employees from the Trump Tax Cuts. Thirteen of those eighteen companies gave one-time bonuses. Six gave wage increases. That’s paltry when you consider these companies are cream off the top.
Among the larger set of Fortune 500 companies, the percentages were only half that already meager number, and that 9% also comprised companies who gave some of their tax benefits to customers or non-profit organizations, instead of employees. Only 5.8% were listed for giving a tax-cut-related benefit in the form of one-time bonuses, and just 3.4% were on the list for wage increases. Not much trickling down there.
Bear in mind that the corporate tax cuts repeat every year, but the bonuses in almost all cases do not. Of course, the income repatriation at a lower rate this year is a one-time tax break, but even there, consider the disparity. Apple, for example, received a $40-billion reprieve on its offshore profits because of which it announced one-time bonuses of $300 million, less than 1% of their repatriation savings. (And that’s in a purportedly extremely tight labor market, so they must be incredibly reluctant to let any of that money trickle down needlessly to the slobs at the bottom.) On the other hand, they are, at least, spending a vast amount on capital that will create a lot of jobs. That is more than most companies reported, but remember Apple is the company that has long had by far the largest overseas cache of cash.
Oh, and eight of those companies listed as having given bonuses laid off a total of 27,000 employees in 2018! The layoffs alone more than paid for the bonuses.
But that is incidental.
Reuters reported back in February that only 2% of American adults had received a raise or bonus as a result of the tax cuts, and that number includes the 1% who profited greatly!
Middle-class death syndrome
Is it any wonder, then, that the once great American middle Ccass that built this country is withering away? In 2015 the middle class comprised less than 50% of the population for the first time since those statistics have been kept.
The 1950s were the prime years of the middle class. Back then America built 75% of the cars and planes in the world, most of the world’s steel and most of the world’s skyscrapers, and the US stock market held most of the world’s stock (by capitalization). Trump may be trying to get some of that greatness back, but his plans are not working yet for workers, though they have been making bank for everyone at the top since the start of the year. You can argue that the trickle is about to start … any day now; but I’ll argue back that my ship is about to come in, too. (I’ve been waiting by the dock many years; though I’m not doing poorly, there is no big ship on the horizon yet.)
Back then the average person’s annual wage/salary equaled half the value of his home. Wages have not kept up with home prices since the seventies. The average annual wage/salary today is about 20% the average cost of a home. A similar thing has happened with respect to Americans’ second-largest purchase — cars. The average salary equaled the price of two and half cars in 1959. The average car costs $36,000 now, while median income is $59,000, enough to buy a little better than one and a half cars. We have made up this difference to retain our standard of living by living off of credit.
Elephants are fat
You may recall that the Donald boasted to proletariate Republicans that his rich friends would not like him after these tax cuts nor would his own accountant. If you believed him, you must have been surprised to hear that he boasted to his wealthy friends at Mar-a-Lago right after the cuts passed that they are now much richer because of him. Of course they are.
Wondering whatever happened to the GOP and fiscal responsibility? I think this explains it: (It all began with the Republican clown car and ended when the biggest clown ran away from the whole DC circus to find a herd of his own and took the Grand Ol’ Party with him.)
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-- Published: Monday, 25 June 2018 | E-Mail | Print | Source: GoldSeek.com