With that in mind, Yahoo Finance’s Myles Udland noted how the corporate tax cuts are changing the decisions companies make, with more money being used to help stockholders instead of making an actual product. .
On Wednesday, two separate corporate announcements highlighted what is likely to be a theme during a fourth quarter earnings season that will pick up steam in the coming weeks.
Bank of America (BAC), which reported earnings before the market open on Wednesday, said that most of the benefits it gets from tax cuts will be used on capital return. On the company’s earnings conference call Wednesday, Bank of America Brian Moynihan said “most of the benefits” from tax cuts “will flow to the bottom-line through dividends and share buybacks over time.”
Moynihan noted that in 2017, Bank of America had $16.6 billion of net income available to shareholders and returned $16.8 billion through dividends and buyback. “So, yes, we will expect to return more capital to shareholders given the tax [cut],” Moynihan said.
And then on Wednesday afternoon, Apple (AAPL) announced that it would “contribute” $350 billion to the U.S. economy over the next five years. In this announcement, Apple identified $30 billion of direct investment as part of this contribution and $38 billion in taxes due to repatriating overseas earnings.
Analysts at RBC Capital Markets said Thursday that this tax indicates Apple will bring back $207 billion after taxes and said they believe “almost all of it” will be used to reward shareholders through share buybacks or dividends. Apple also announced Wednesday that all employees will get $2,500 of restricted stock, and while this news is a clear positive for employees it also implicitly acknowledges that one must be a shareholder to see the clearest benefit from lower taxes.
This a-hole may like it, but how does it help us?
Meanwhile, if you work at a real job with some of these companies, and you’re not making those decisions in the boardroom? Well, you better keep your resume up to date, because lower corporate taxes encourage this type of profit-hoarding and wage suppression over actual business growth.
David Dayen exposed the scam corporations are trying to run on the average American in an article last week for Vice news. Dayen pointed out that last month’s well-publicized corporate raises were done because they carried a bigger bang for the buck than if they did the same this year, and are little more than a cheap PR stunt.
The Comcast and AT&T bonuses were also announced late last year, allowing them to be written off as a business expense in 2017. If a business gave a bonus in 2017, it went against the 35 percent corporate tax rate then in effect. If were to give one this year, the bonus would only go against the new 21 percent rate. In other words, it was cheaper for businesses to announce bonuses in December than January, suggesting we may not see much of their kind again.With this in mind, watch what happens when first quarter earnings come in around 2018. If there aren’t massive increases in after-tax profit due to the tax cuts, there will be a lot of pressure to do “cost-cutting measures” to improve that bottom line.
But Comcast and AT&T in particular serve as the poster children for dishonesty in this matter. Because around the same time that they made a big show of rewarding employees with bonuses, both companies quietly engaged in layoffs. Comcast fired 500 members of its sales department before Christmas, and AT&T is eliminating “thousands” of jobs, according to its union, the Communications Workers of America. “We believe there's more than 4,000 people AT&T has (notified of layoffs) across the country,” Larry Robbins, vice president of CWA Local 4900, told the Indianapolis Daily Star.
Just to do the math on this, $1,000 bonuses to 200,000 AT&T workers is $200 million. Cancelling 4,000 jobs at the median US compensation of $59,000 per year (some of the workers affected likely earned less) would actually amount to a higher number, and unlike the bonuses, those layoffs are permanent. More to the point, any $1,000 bonus for workers is a drop in the ocean compared to chopping the corporate tax rate by 40 percent, as the Trump tax cuts will. AT&T, according to calculations from economist Dean Baker, will see $2.4 billion in annual savings from that tax cut, more than ten times the likely cost of its the one-time bonus. (Neither Comcast nor AT&T immediately responded to a request for comment.)…
But the real corporate face of the tax cut is Pfizer. The drugmaker is said to have among the largest stash of money of any corporation parked offshore, which under the tax law they can now bring back at a dramatically discounted rate. So how have they repaid workers since enjoying that windfall? They’ve announced a $10 billion buyback, an increased dividend, and the elimination of investment into research on Alzheimer’s and Parkinson’s disease, laying off 300 scientists and putting breakthroughs to fight those diseases further out of reach. (When reached for comment, Pfizer spokeswoman Neha Wadhwa told VICE that the research and shareholder payout decisions were "totally independent of tax reform," and that the company would decide how to react to the tax changes alongside its earnings statement later this month.)
In other words, these announcements are worse than a joke. They represent a deliberate strategy to curry favor with the public and President Trump while executives gorge themselves on tax cuts, most of which won’t trickle down to anyone. Corporations simply don’t make decisions based on taxes, and certainly not decisions to benefit workers over the long-term. These corporate PR departments are deceiving America to preserve an ideology of ultra-low taxes, and hoping nobody notices the truth.
And you can bet those cost cuts won’t come out of the hides of overpaid CEOs and the rent-seeking investor class.
I thought the latest was Apple is paying less than half what they owe on repatriated funds. Is it possible for me to retroactively claim my new tax deduction on income from years ago?ReplyDelete
Of course not geo! You and I don't have the time and money to hire lobbyists, so we don't get that type of retroactive help.Delete