Major corporations are planning to spend more than 30x what they are putting in the wallets of employees on buying back their own stock, benefiting wealthy shareholders

Washington Post

 February 6, 2018 

Rick Wartzman, director of the KH Moon Center for a Functioning Society at the Drucker Institute at Claremont Graduate University, is author of “The End of Loyalty: The Rise and Fall of Good Jobs in America.” William Lazonick is an economics professor at UMass Lowell and president of the Academic-Industry Research Network.

Don’t let pay increases coming out of tax reform fool you

Egged on by the White House, corporate America has spent the past few weeks touting how it is sharing its big Trump tax cut with employees in the form of bonuses and pay increases — an apparent validation of the trickle-down approach to economics espoused by the president and his Republican allies.But when we look at the numbers, we see the opposite: The nation’s workers are getting woefully little, at least relatively speaking. Peeking beyond the PR, our analysis finds that major corporations are planning to spend more than 30 times what they are putting in the wallets of employees on buying back their own stock — a practice solely meant to lift the fortunes of shareholders.

Not that we’re surprised. Favoring stockholders over workers continues a decades-long trend that has contributed to wage stagnation, exacerbated income inequality and slowed economic growth across the country.

To get a sense of how the pie is being divided, we collaborated with Emre Gome c of the Academic-Industry Research Network to tally the sums of commitments from the 44 companies in the S&P 500 stock index that, according to Americans for Tax Reform, are giving their employees a bonus or a raise because of the new law. When you add it all up, you get about $5.2 billion — $3.7 billion in one-time bonuses and an estimated $1.5 billion in annual wage increases.

But that total pales in comparison with the $157.6 billion in stock buybacks announced by 34 S&P 500 companies since early December, when the tax bill passed the Senate. Companies typically purchase their own shares in a bid to bump up the price — a move that tends to please Wall Street and swells the compensation of chief executives, who are paid largely in stock.

Admittedly, our calculations aren’t perfect. Not every company has spelled out how many employees will see wages rise or by exactly how much. In such cases, we’ve assumed that the increase is at the most generous end of the spectrum and will affect the most employees. In other words, if we’ve erred, we’ve erred on the side of inflating the amount being given to workers.

To be clear, most of the companies that have said they’ll be distributing some of their tax savings to their employees have not also announced a new stock buyback. But a few have. For example, Bank of America will provide a $1,000 bonus to its 145,000 employees “in the spirit of shared success.” That will cost the company $145 million. In December, the bank also added $5 billion to its buyback plans, bringing its projected total to $17 billion by June 2018.

It is only fair to acknowledge that we haven’t counted other gains to employees and communities that some companies have reportedly pledged because of the tax law, including additional contributions to 401(k) plans and philanthropic donations. Apple said last month that it would have a $350 billion impact on the U.S. economy over the next five years as it creates 20,000 jobs, builds a corporate campus and makes other investments — though it appears that much of this activity would have happened without the new tax law.

Still, even if you take all this into account, there’s no way you’d match what is being channeled to stockholders. Not even close.

It wasn’t always like this. Forty years ago, big companies usually paid out about half their profits to stockholders. The other half was reinvested in research and development, worker training, higher employee compensation and so on. Figures compiled by researchers at the Academic-Industry Research Network show, however, that 94 percent of profits over the past decade have gone to benefit shareholders directly through buybacks and dividends.

What changed? Beginning in the mid-1970s, a movement to “maximize shareholder value” above all other considerations gained currency. And in 1982, the Securities and Exchange Commission adopted a rule that allows executives to massively buy back the company’s stock without fear of being charged with manipulating the share price — even though that is precisely what they are doing.

Soon, top corporate executives were being paid more and more in stock — making it in their personal interest to drive their company’s share price upward in the short term. In this environment, corporations have come to view workers as an avoidable expense, not as an asset to invest in.

Some will argue that almost everyone benefits when stock prices climb. This is false. Research shows that the top 10 percent of wealthy U.S. households control 84 percent of the value of all shares.

Don’t get us wrong. We applaud those companies that are making sure their employees get a piece of the Trump pie. But context is crucial. In the scheme of things, the American worker is still being handed crumbs.

Read more:

Jennifer Rubin: The phony bonus ploy

Helaine Olen: Don’t get spun by Trump’s boasts about ‘big bonuses’ and the ‘tax cut bill’

Ed Rogers: Democrats are coming unhinged over the Trump economy

Helaine Olen: Don’t get snowed by Trump’s tax-plan victory dance

From Les Leopold:

An article in yesterday’s Washington Post by Rick Wartzman and William Lazonick explains how companies are hiding massive financial stripmining after the tax cut, using one-time bonuses as cover. Some extra cash is nice, but follow the money to see who’s really getting the spoils.

In Runaway Inequality news, we’re making the petition shorter. Here’s why:

The Runaway Inequality petition was designed primarily to promote a productive educational discussion about how to bring more justice and fairness to society. The key goal was to help people realize that it is time for us to come out of our issue silos and join together in a common movement to reverse runaway inequality. We must come together because all our issue silos are connected by the ways in which Wall Street is financially strip-mining nearly every aspect of our society.

Unfortunately, after considerable testing in the field, we now realize that the first part of the petition (which includes a series of issues, like campaign finance reform, health care, free higher education, criminal justice reform etc.) actually promotes silo thinking rather than helping people see the need for a broader common movement.

People tend to focus on those particular issues that they are most concerned about, or that their organization is working on. Then they often proceed to wordsmith the plank so that it would be more acceptable within their silo. People often respond with something like this: “For me to push this petition with my organization I need to revise the language so that it says x, y and z….”

While this may be an important discussion to have at some point, it is not the one that we are attempting to promote educationally using the runaway inequality petition.

It is interesting to note that the discussion of the financial planks at the end (public banking, wealth tax etc.) are not treated as silo issues. With these planks the discussion focuses squarely on Wall Street and how to repress its insatiable greed.

Therefore, we are reducing the petition to just those planks, plus one more that we’ve added below on the outrageous “Carried Interest” hedge fund tax loophole. Not only do we think these planks will produce a better dialogue that goes beyond the silos, but also it will make the petition much shorter, with a clearer focus.

Take a look and let us know what your think.

To: The American Political Establishment
From: [Your Name]

Petition to Reverse Runaway Inequality

We the undersigned pledge to build an America in which prosperity is shared among all its people, not just the billionaire class and Wall Street. Toward that end, we pledge to work for the following agenda to reduce inequality and support candidates who pledge to do the same.

Public Banks: As an alternative to Wall Street’s predatory lending, every state and large city should charter a public bank, modeled on the Bank of North Dakota, whose first and only goal is to serve its people. Also, like many other developed nations, the United States should adopt postal banking to provide fair and accessible financial services via the U.S. Postal Service.

Taxing Wall Street: To move money to Main Street, a sales tax (a small fraction of one percent) should be imposed on stocks, bonds, and derivatives trades, (often referred to as the Robin Hood Tax or a Financial Speculation Tax.) It would be practically invisible for nearly all of us, but would add up to significant amounts on the large Wall Street players. It also would discourage high frequency computer trades, which make up the majority of all stock market activity.

End Stock Manipulation: CEOs and their Wall Street partners should not be permitted to enrich themselves by using corporate funds to buy back their own shares in order to artificially raise share prices. This important protection was repealed in 1982 by the U.S. Securities and Exchange Commission (SEC) and should be reinstated.

Wealth Tax of One Percent on Those Whose Net Worth is More Than $10 Million: Those who have grown super-rich in our financialized economy often have ways to shelter income and avoid paying their fair share of taxes. A wealth tax, currently used by Spain, France, Switzerland and Norway, has proven an excellent way to ensure that we all contribute a fair amount.

Repeal the Hedge Fund tax loophole: Super wealthy hedge fund and private equity managers take advance of a special loophole called “Carried Interest” which allows them to pretend their income is capital gains and therefore taxed at a much lower level. There is no reason in the world for the richest of the rich to have avoid at least $10 billion a year in taxes. This should be eliminated immediately

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