(Roughly) Daily

Fans of the Tax Cuts and Jobs Act of 2017 have excitedly proclaimed that it will release the “Animal Spirits” of the American economy, hailing it as a spur to investment and a boon to workers.  But as CNN points out:

The White House has celebrated the tax cut bonuses unveiled by the likes of Walmart, Bank of America, and Disney.

Yet shareholders, not workers, are far bigger direct winners from the Tax Cuts and Jobs Act of 2017.

American companies have lavished Wall Street with $171 billion of stock buyback announcements so far this year, according to research firm Birinyi Associates. That’s a record-high for this point of the year and more than double the $76 billion that Corporate America disclosed at the same point of 2017…

The amount of money allocated so far on bonuses and wage hikes pales in comparison with Wall Street’s buyback bonanza.

S&P 500 companies have devoted about $5.6 billion to bonuses and wage hikes because of the tax law, according to research from academics Rick Wartzman and William Lazonick as well as the Academic-Industry Research Network. The group added up commitments from the 50 companies in the S&P 500 that had announced plans to reward workers through February 15.

Indeed, as Marketwatch reports,

A report by benefits consulting firm Aon Hewitt [finds] that 83% of large companies don’t expect the tax cut to boost salaries at all — just help pay for small bonuses companies like WalMart  and AT&T gave workers, which reporters soon discovered were, themselves, skewed toward higher-paid, longer-tenured employees in many cases…

And perhaps more fundamentally alarming, the proposed boost that the tax act was supposed to provide to corporate investment– to America’s long-term competitiveness and to the creation of new jobs– seems stuck in the gate; as Marketwatch continues:

Goldman finds companies have raised guidance on re-investment in their businesses — the putative reason for cutting corporate taxes at all — only 3%…

…which, given Census Bureau tabulations of past capital expense, would be about $30 Billion– well under 20% of the buy-back activity planned (so far).

Stock buy-backs have played a powerful role in the performance of the stock markets– which President Trump often conflates with the performance of the economy as a whole– over the last several years; the Financial Times observes:

Corporate share repurchases have been a powerful driver of the US equity market’s post-crisis recovery and subsequent climb to record highs last month. US companies have bought back about $3.5tn since 2010. Throw in nearly $2tn of dividends and the overall handout to shareholders has been much greater than the Fed’s entire quantitative easing programme. Buybacks started to slow down last year, but there are signs that investors can still count on Corporate America. In fact, companies’ purchases of their own shares appear to have played a role in reversing the recent stock market swoon…

As the FT points out, while this is a boon to equity investors, it “may be bad news for hopes of an investment-fueled economic boom.”

Indeed. (See also: “Confidence Tricks“)

* President Donald J. Trump, on the passage of the Tax Cuts and Jobs Act of 2017

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As we wonder about the equity in equities, we might send carefully-calculated birthday greetings to Paul Robin Krugman; he was born on this date in 1953.  A Nobel laureate in economics (for his work in the dynamics of international trade), he is Distinguished Professor of Economics at the Graduate Center of the City University of New York.  But he is much more widely known as a columnist for the New York Times, where he wrote (on November 27, 2017) a piece on the then-pending tax bill: “The Biggest Tax Scam in History.”

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