Posts Tagged ‘taxation’
“It’s always a lot of fun when you win”*…
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.”
“We don’t pay taxes. Only the little people pay taxes.*…
In a seminar room in Oxford, one of the reporters who worked on the Panama Papers is describing the main conclusion he drew from his months of delving into millions of leaked documents about tax evasion. “Basically, we’re the dupes in this story,” he says. “Previously, we thought that the offshore world was a shadowy, but minor, part of our economic system. What we learned from the Panama Papers is that it is the economic system.”
Luke Harding, a former Moscow correspondent for The Guardian, was in Oxford to talk about his work as one of four hundred–odd journalists around the world who had access to the 2.6 terabytes of information about tax havens—the so-called Panama Papers—that were revealed to the world in simultaneous publication in eighty countries this spring. “The economic system is, basically, that the rich and the powerful exited long ago from the messy business of paying tax,” Harding told an audience of academics and research students. “They don’t pay tax anymore, and they haven’t paid tax for quite a long time. We pay tax, but they don’t pay tax. The burden of taxation has moved inexorably away from multinational companies and rich people to ordinary people.”…
More from Alan Rusbridger (former editor of The Guardian, now Principal of Lady Margaret Hall, Oxford, and Chair of the Reuters Institute for the Study of Journalism) in The New York Review of Books: “Panama: The Hidden Trillions” (the first of two parts).
* Leona Helmsley, New York property heiress
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As we fulminate on fairness, we might recall that it was on this date in 1792 that a group of 12 Freemasons laid the cornerstone of The White House. Eight years later, John and Abigail Adams moved in.
The White House was designed by James Hoban, an Irish immigrant architect living in Charleston, South Carolina, who won a competition for the commission (and a $500 prize) with a design modeled after Leinster House in Dublin, Ireland. He beat out a future resident, Thomas Jefferson, whose Monticello/UVa-like design was among the many losers.
It’s not known whether there was anything contained within the cornerstone. In fact, though the building stills stands (albeit rebuilt and expanded after being burned down during the War of 1812), the whereabouts the stone itself are a bit of a mystery.
“Synchronicity is an ever present reality for those who have eyes to see”*…
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* Carl Jung
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As we giggle at the rejiggering, we might recall that it was on this date in 1943 that the Current Tax Payment Act was passed– (re)introducing employer withholding of employee tax obligations. Withholding had first appeared as a feature of the income tax that was introduced pursuant to the Revenue Act of 1913. It was so unpopular, with employers and employees alike, that it was repealed by the Income Tax Act of 1916; from then until 1943, income taxes were collected at the end of the year in a lump sum.
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