It’s a safe bet that President Trump will devote part of his State of the Union address Tuesday night to talking up the great virtues of the tax cut he signed into law just before Christmas. He’ll probably try, like other Republicans, to depict it as a “middle-class” tax cut, the better to obscure the truth that its benefits flow chiefly to corporations and the wealthy.
Forewarned is forearmed, so here’s an advance cheat sheet placing the tax cut in perspective. The bottom line is that almost no workers have seen any direct benefits from the tax cut thus far. Dozens of corporations have announced onetime bonuses for employees, mostly of up to $1,000 each. Almost every one has attributed its largesse to the tax cut bill, but that’s just PR.
The drumbeat of coverage of these self-congratulatory announcements obscures how they’ve left the vast majority of American workers unaffected. In a Reuters/Ipsos poll released this week, only 2% of U.S. adults said they had gotten a raise, bonus or other benefit due to the tax cut.
This incremental investment in our associates was made possible by the new tax reform bill.
More to the point, the coverage obscures how cheeseparing these handouts are, even for those who receive them. Think of it this way: $1,000, spread over a year of full-time work (40 hours a week, 52 weeks), works out to 48 cents an hour.
Many workers no doubt will be gratified to see the bonus in their paychecks, though even if it’s paid out all at once, it won’t show up as $1,000, but as $880 or even less. That’s because bonuses are subject to withholding, like all other wage income. If the bonus is paid separately from your regular paycheck, it’s subject to a 22% bite; if it’s just added to your paycheck, it’s subject to your standard withholding rate.
Upon announcing the employee bonus, Home Depot CEO Craig Menear said: “This incremental investment in our associates was made possible by the new tax reform bill.”
At least Menear candidly called it “incremental,” which usually connotes something small. What Home Depot failed to specify publicly was how the bonus would be distributed among its hourly workers. But the company says the only workers who will receive the full $1,000 are those with 20 years of experience at the company or longer.
Whatever the system, the bonuses that companies are beating the drums about are onetime payouts, with no guarantee that they’ll be repeated next year or the year after that. The bonuses, minimum-wage increases and other benefits being offered by employers don’t come close to passing a fair share of the tax cut to workers.
The corporate tax cut, however, is a gift that keeps on giving … to shareholders.
Even if Home Depot were handing out $1,000 to each of its approximately 380,000 hourly workers, that would come to $380 million. In December, before Congress voted on the corporate tax cut but when it seemed to be on its way to enactment, Home Depot announced a share buyback program valued at $15 billion.
Think of it this way: A Home Depot employee with, say, five years of work and a full time job there will get a bonus of $300. That’s a bonus of 14 cents per hour over a year.
The $15-billion share buyback works out to about $12.50 per share. So someone with 80 shares will benefit about as much as someone who has worked an hourly job at Home Depot for 20 years or more.
Which of those people do you think has done more heavy lifting for Home Depot?
The company’s share-buyback announcement was one of $70-billion worth of share buybacks announced by big companies in that period, a crystal-clear signal that the bulk of the expected tax cuts would be funneled to shareholders. A Home Depot spokesman says that the “reform is completely unrelated to our buyback decision, and the [$15-billion] is actually half of our normal buyback amount.”
What Home Depot doesn’t say is that those earnings will receive a preferential tax rate of 15.5% maximum. If the money had had to be brought back under the full corporate tax rate of 21% established by the legislation, the charge would have been $203 million. If it were subject to the 35% corporate rate in effect prior to the tax cut, the charge would have been $338 million. In other words, Home Depot scored a tax break of $188 million on those overseas earnings alone. To be fair, the company also said the tax legislation will produce a lower overall tax bill this year.
Trump and his fellow Republicans have been touting the notion that the tax cut will yield a wage increase of $4,000 for the average middle-class family, but the evidence for that is nonexistent. Even some companies that have been crowing about their bonuses have been simultaneously laying off workers by the thousands.
The very day that Wal-Mart announced its own bonuses of up to $1,000 (like Home Depot, the maximum will go to workers with 20 years or more with the company) it announced that 10,000 employees would lose their jobs, chiefly due to the shuttering of many of its Sam’s Club membership stores. Kimberly-Clark announced last week that it would pare employment by up to 5,500, or as much as 13% of its workforce. As an indication of how the tax cuts really may impact the ordinary worker, the company said it would pay for severance and other “restructuring” costs partially with its savings from the tax cut.
3:40 p.m.: This column was updated to reflect that Home Depot announced its share buyback before the congressional vote on the tax cut, not after, and to include a comment from a company spokesman.