Early this year, big U.S. companies couldn't stop talking about President Donald Trump's tax cuts. Flush with the projected savings from a $1.5 trillion law, they promised to raise wages, hand out bonuses to workers and invest in big projects. They scored headlines, along with applause from Trump.
The fawning faded quickly. Analysts noted that the handouts to workers amounted to a relatively small share of the roughly $200 billion in federal income taxes that corporations avoided thanks to the cuts. Wages across the economy ticked up, but not by nearly as much as some Republicans had promised when they voted for the law. Capital investment surged at the start of the year, but the rate of growth fell sharply in the third quarter.
Stock buybacks by publicly traded companies continue to set records. They neared $200 billion in the third quarter for S&P 500 companies. Goldman Sachs analysts have predicted that the total amount of buybacks across the economy could top $1 trillion for the full year.
Some workers did reap rewards from the law, as many companies followed through on -- and even exceeded -- their promises to raise wages and pay bonuses. Yet other companies have announced layoffs, despite reporting higher profits and billions of dollars in tax savings.
While the long-term effects remain to be seen, the evidence does not suggest the sustained investment and productivity growth boosts that Republicans and supply-side economists predicted. Many economists, including those at the Federal Reserve, are cutting their growth forecasts for 2019, in part because of the waning effect of the tax cuts.
By cutting the corporate rate to 21 percent from a high of 35 percent, the law has reduced the effective tax rate that many companies pay.
That has fueled after-tax corporate profits, which rose nearly 20 percent in the third quarter from the previous year. The tax law was clearly a driver of that increase -- because profits before taxes rose at a much slower rate. In the last half-century of the U.S. economy, it's been rare for after-tax profits to grow so much faster than before-tax profits; usually, it happens only around recessions, when companies rack up operating losses they can use to reduce tax bills.But the economy is on track to grow at about a 3 percent clip this year, after adjusting for inflation.
Walmart has saved at least $1.6 billion for the first three quarters of 2018, compared with what it would have paid under its previous effective rate. Bank of America has saved at least $2.4 billion over the same period. AT&T has saved $2.2 billion; Verizon has saved $1.75 billion and Apple has saved about $4.5 billion. In welcoming those windfalls, companies frequently promised to help workers.
"This tax reform will drive economic growth and create good-paying jobs," Randall Stephenson, the chairman and chief executive of AT&T, said last year, as the company announced plans to award worker bonuses and increase capital spending.
Bank of America's chief executive, Brian Moynihan, told workers in a memo last year that the new law would reduce the bank's tax rate, and that "in the spirit of shared success, we intend to pass some of those benefits along immediately" to workers.
Some companies added workers and raised wages, while others cut jobs.
Job creation accelerated across the economy this year, compared with 2017, including at several large companies that celebrated the tax cuts by expanding hiring plans. But strong growth has not spared the jobs of thousands of American workers at large companies where executives have cited automation, outsourcing and product-line restructuring to explain why they reduced employment in a year when tax cuts raised their profit margins.
After the law was approved, Apple promised to add 20,000 domestic jobs over the next five years, along with making other investments in the United States. So far, it is on track: It added 6,000 employees in 2018. (It also announced a $100 billion stock buyback program and a dividend increase worth $2 billion.)
Walmart increased its starting wage to $11 an hour, gave bonuses of up to $1,000 each for associates and expanded some worker benefits like parental leave. The wage increase amounted to $300 million more than the company had planned before the cuts. Its employment levels have not changed over the year.
Other companies have cut workers, even as they enjoy high profits and big tax windfalls. Bank of America gave bonuses of $1,000 last year, which it attributed to the law, and said this fall that soaring profits will spur a second round of bonuses. Its dividend recently jumped by 44 percent, and it has announced $20 billion in stock buybacks since the law passed.
Yet financial filings show it has cut 5,000 jobs this year, continuing a downward employment trend that dates to 2010.
Another bank that reaped billions from the cuts, Wells Fargo, said this fall that it plans to reduce its workforce by up to 10 percent, citing changes in customer demands. Wells Fargo has announced $40 billion in stock buybacks since the law passed.
AT&T handed out $200 million in worker bonuses and contributed $800 million to its employee and retiree medical trust fund. It increased its dividend for the 35th consecutive year. It also appears to be shedding employees. Officials at the Communications Workers of America, the union that represents AT&T workers, say the company has cut more than 10,000 union jobs this year, accelerating its pace of cuts from last year.
Verizon has cut 3,100 positions this year, financial filings show. The company announced this month that 10,000 more workers have accepted a buyout offer as part of an effort to reduce its head count while ramping up its push into the next generation of wireless technology, known as 5G. This fall, Verizon reached a deal to transfer about 2,500 jobs to Infosys, a large Indian technology outsourcing company.
Business on 12/28/2018