Stock buybacks up, wages not so much. Just the way the GOP Tax Scam's oligarchs want it

Bloomberg’s Noah Smith wrote an article in Bloomberg News a couple of weeks ago that seems to have been ahead of the curve when it came to evaluating the GOP's Tax Scam. The article is title "Trump’s Tax Cut Hasn’t Done Anything for Workers", While Smith concedes that the tax cut has only been in place for a few months, it's not too early to start seeing if it's having any immediate effect.

But it’s also important to evaluate policies like Trump’s tax reform as quickly as possible. Not only is this critical for deciding whether to change course, but as more time goes on, the effects of a policy can become harder to assess. Two years from now, plenty of other things will have had time to affect the economy, including Trump’s trade war and natural economic forces. And now that the tax cut has been in effect for a half-year, the results are starting to trickle in.

First, the tax reform hasn’t yet resulted in appreciably higher wages for American workers. Real average hourly compensation actually fell in the first quarter after the tax reform was passed:

Smith also includes this next chart in the article, which is based on Pay Scale’s index of real wages, You may have seen it make the rounds in the last couple of weeks.



And this reality reflects the choices made by many corporations to “reinvest” their windfall from lower tax rates by sharing it among their fellow executives and other stockholders.

Some have expressed dismay that stock buybacks seem to have taken precedence over boosting capital investment. Since the tax cuts passed, companies have been using buybacks to return record amounts of cash to shareholders — more than $700 billion in the first two quarters. That naturally raises the possibility that companies don’t have good projects to invest in. If companies pass their tax windfall on to shareholders, those investors can choose to react by increasing consumption — meaning more of society’s resources go to the wealthy. They can also choose to invest the money in other companies with better growth prospects — but if those companies are also reacting by returning the money to their shareholders, rather than making capital expenditures, not much is getting accomplished.

Politico had an article out yesterday along that same vein, where evidence continues to point to the GOP Tax Scam resulting in "eye-popping" amounts of self-enrichment by CEOs.

A POLITICO review of data disclosed in Securities and Exchange Commission filings shows the executives, who often receive most of their compensation in stock, have been profiting handsomely by selling shares since Trump signed the law on Dec. 22 and slashed corporate tax rates to 21 percent. That trend is likely to increase, as Wall Street analysts expect buyback activity to accelerate in the coming weeks.

“It is going to be a parade of eye-popping numbers,” said Pat McGurn, the head of strategic research and analysis at Institutional Shareholder Services, a shareholder advisory firm….

Following the tax cuts, roughly 28 percent of companies in the S&P 500 mentioned plans to return some of their tax savings to shareholders, according to Morgan Stanley. Public companies announced more than $600 billion in buybacks in the first half of this year — already toppling the previous annual record.

Year to date, buybacks have doubled from the same period a year ago, Merrill Lynch said in a July 24 report, citing its clients’ trading activity. “Last week we noted that buyback activity [was] poised to accelerate over the next six weeks, and indeed, corporate clients’ buybacks picked up to a two-month high and the 6th-highest level in our data history,” the company said.

The correlation between corporate buybacks and insider sales is clear, according to SEC Commissioner Robert Jackson, a Democrat. He studied 385 buybacks since the beginning of 2017 and found that after half of them, at least one executive sold shares within the next month.

In fairness, one area that has seen an uptick in growth since the tax cut has been discussed seems to be in capital investment for items like equipment and buildings. Non residential fixed private investment (which reflects most business equipment and buildings, and is shown in yellow in this chart) has been a consistent source of growth to the economy in each of the last 3 quarters,



But note that residential fixed investment (homes and apartments, generally) has been basically flat if not declining in the last few quarters. That may be another sign of stagnant wages not translating into home sales, although diminishing affordability also seems to be a factor (which of course, reflects the stagnant wages).

Noah Smith notes that part of the reason tax cuts don’t add to the economy in the US the way they might have 40-50 years ago is simple - We’ve cut taxes numerous times since then, so we’re starting from a lower tax rate. Which means future tax cuts offer little bang for the bucks.

In the postwar period, with top marginal income tax rates at more than 90 percent, it made sense to cut taxes as a way of improving the economy’s long-term health. A series of big tax cuts, under presidents Lyndon Johnson and Ronald Reagan, might have boosted economic activity in their day. But the later tax cuts by George W. Bush were followed by years of underwhelming growth, implying that income taxes were no longer doing much damage to economic efficiency.

Corporate taxes were really the last hope for the tax-cutting strategy. But if even that doesn’t provide more than a small momentary fiscal stimulus, then we’ve reached the end of that approach’s usefulness.

My question is- when do enough people say “Time’s up” and start to reverse this hazardous funneling of money to the pockets of CEOs and other idle rich, and get the money into the pockets of the individuals with real jobs that are barely staying afloat? Because it needs to happen soon.

I know this song is about S&M, but I've long thought it to be a metaphor with how our corporatist economy really works. "It's a lot like life", and it's certainly what the Kochs and other oligarchs want as their endgame.