On Wednesday afternoon, AT&T CEO Randall Stephenson announced his employees would get a Christmas bonus of $1,000. Now that the tax bill lowering the corporate tax rate to 21 percent had passed Congress, Stephenson wrote, the world’s largest telecom would, as promised, increase its investment in the United States by $1 billion next year—starting with a nice holiday bonus for all the company’s 200,000 employees.
By nightfall, the company had been joined by Comcast, which offered a $1,000 Christmas bonus to non-executive employees. Two banks, Wells Fargo and Fifth Third Bancorp, announced they would raise their base pay to $15 an hour.
Conservative economists have long believed that it would be investment, not bursts of executive generosity, that would drive up worker pay as companies took home more money. The empirical evidence is not good. Even as corporate earnings have ascended to their largest share of GDP since the postwar boom, and corporations get better and better at dodging the taxman, wages and salaries now occupy their lowest share of GDP since the second world war. Real wages have barely budged upward since 1980—and have fallen for the lowest-paid workers. Wall Street actively cheers against pay bumps: When American Airlines announced raises for pilots and flight attendants, the company’s stock fell 5 percent. “This is frustrating. Labor is being paid first again. Shareholders get leftovers,” Citi analyst Kevin Crissey wrote to clients. (Let them eat airline peanuts!)
Bottom line: Corporations have plenty of money. Critics say the tax cut is trying to solve a problem that doesn’t exist.
Still, maybe, surely, slashing the corporate tax rate by 14 percentage points will be the thing to finally get America’s biggest companies to share some money with their workforce?* Kevin Hassett, the chair of the White House’s Council of Economic Advisers, predicted earlier this year that the average household would receive a $4,000 to $9,000 raise from reducing business taxes alone. In October, the president himself promised $4,000 raises to truckers in Harrisburg, Pennsylvania. The Communications Workers of America, a union whose members are employed at big telecoms like AT&T and Verizon, asked bosses to put that figure in writing. They did not.
CEOs have long said that lower taxes would lead to more spending on capital expansion, R&D, and wages. But at a conference in November, Trump’s chief economic advisor Gary Cohn asked a room full of CEOs who was planning to invest more if the tax bill passed. Almost no one raised a hand. “Why aren’t the other hands up?” Cohn asked.
Since most U.S. workers have taxes withheld from their biweekly paychecks, the reductions in the individual tax rate will come across in the form of lower withholding and look like higher wages. You’ll get more money every two weeks. But will your boss actually be paying you more? Not for the hell of it. Corporations tend to raise wages because they’ve created more, better-paying jobs. So far, that kind of expansion hasn’t been a big talking point for public companies… at all. In fact, AT&T’s assurance that it would invest $1 billion in the U.S. was a bit of an outlier.
It’s not that they won’t be making more money: They are. Delta CEO Ed Bastian told analysts the corporate rate drop will give the company an extra $800 million next year. Wells Fargo estimated that AT&T and Verizon could make more than a billion dollars each just on “bonus depreciation,” which allows the companies to make deductions for capital costs like cell towers up front.
So far, though, most companies have said they’ll use the impending cash glut on stock buybacks and rising dividends, both rewards for shareholders who have sent the Dow Jones Industrial Average up by 25 percent this year in preparation for this moment.
Here are some highlights of corporate responses to the tax bill, courtesy of Thomson-Reuters: Boeing added $4 billion to an existing $14 billion repurchase program. Honeywell expanded its share buyback to $8 billion. Anthem put $5 billion into share buybacks. Home Depot $15 billion. Bank of America $5 billion. MasterCard $4 billion. T-Mobile USA $1.5 billion. According to a report released by Senate Democrats, companies announced $70 billion in buybacks just in the 10 days following the Senate tax bill’s first passage on Dec. 2. “Corporate CEOs have made clear that the massive tax giveaways in the Republican plan will not be passed on to workers but to rich investors,” Sen. Elizabeth Warren said in a statement.
Compare those allocations to, for example, a Boeing statement on Wednesday that announced “employee-related and charitable investments to spur innovation and growth.” The company would commit to $300 million in investments, including corporate giving, workforce development, and infrastructure enhancements for employees. No mention of wages. Southwest CEO Gary Kelly said his company would get a windfall of hundreds of millions of dollars, which he might use to modernize the company’s planes.
Fifth Third Bancorp, based in Cincinnati, will raise wages for 3,000 employees to $15, or, in annual terms, $32,000 a year before taxes. Assuming those bank employees were making Ohio’s minimum wage of $8.15 an hour, this amounts to an annual outlay of $45 million from a bank that reported $630 million in profits in the first half of 2017.
So if the trickle has begun, it’s not thanks to economics but to PR—and perhaps a little bit of human guilt that a bank or telecom company could, in 2017, pay workers less than $25,000 a year. (AT&T has a merger pending before Trump’s Department of Justice; it can’t hurt that the company was the first to vindicate, in a roundabout way, the president’s claims.)
Fifth Third and AT&T will dominate Christmas headlines with news of their $1,000 bonuses. Other companies could be lured into offering bonuses or raising wages, too. Or they could be shamed for paying workers poverty wages while pumping billions into inflating their stock price. But all that could have happened without a 14 percentage point corporate tax cut.
*Correction, Dec. 21, 2017: This article originally stated that the corporate tax rate would be cut by 14 percent. It will be cut by 14 percentage points.