Guess where the corporate tax cut money is flowing
With public companies on track to shower a record $1 trillion on investors through dividend increases and share buybacks, Sen. Marco Rubio's recent suggestion that workers weren't getting much benefit from corporate tax cuts may sound truer than ever.
"There is still a lot of thinking on the right that if big corporations are happy, they're going to take the money they're saving and reinvest it in American workers," the Florida Republican told the Economist last week. "In fact they bought back shares, a few gave out bonuses; there's no evidence whatsoever that they money's been massively poured back into the American worker."
While a White House tally in February had at least 275 companies increasing worker compensation, and Americans for Tax Reform, a conservative group, pegs at 4 million the number of workers that have gotten bonuses or increased pay, Wall Street analysts who track corporate cash flows tell a different story.
The GOP tax law drastically cut taxes on U.S. businesses, slashing the corporate rate to 21 percent from 35 percent, yet expectations that companies would increase their investments in labor or business expansions are not panning out. At least not in contrast to the rewards being heaped upon investors.
For the current quarter, "buybacks are expected to increase, potentially setting a new record for the year, with total shareholder return [of buybacks and dividends for the S&P 500] topping $1 trillion for the first time," Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, wrote Monday.
Rubio's take is "basically correct," David Santschi, director of liquidity research at TrimTabs Investment Research, told CBS MoneyWatch. Winston Chua, an analyst at TrimTabs, added that "U.S. companies are spending much more on cash mergers and stock buybacks than they are on hiring and pay increasings, benefiting top management and investors far more than the average worker."
Companies repurchase their own shares as a means of lifting their market value, at least in the short haul. While a reward for shareholders, there's an argument to be made that the cash might be better spent on research and development with an eye on the longer-term picture.
In the first quarter, corporate America committed $305 billion to cash takeovers and stock buybacks, more than double the $131 billion in pre-tax wage growth for both new and existing workers subject to income tax withholding, TrimTabs calculates.
The full impact of tax cuts enacted in December have not yet been felt, but the trend in play the first three months of the year is not new. During the last five years, companies committed $4.9 trillion to mergers and share repurchases, or more than double the $2.3 trillion devoted to pre-tax wage growth, Trim Tabs found.
Separately, a survey of business executives recently released by the Atlanta Fed found three-quarters of respondents indicated the tax legislation had not prompted any changes in investment plans for 2018.
"If anything, these firms have revised down their expectations for the year," the regional Fed found in looking at plans for capital expenditures, which are fixed, one-time costs that companies make in equipment or land.