The corporations that will benefit from the massive Republican tax giveaway have made no pretense about what they planned to do with all that money: enrich themselves, specifically their CEOs and their highest compensated officers and directors. What we are about to witness and what Donald Trump signs into law will amount to “income inequality” on steroids.
Nor was there any necessity of waiting until the “final” version of the legislation was drafted. The giant sucking sound of incredible redirected wealth has already been well underway for weeks as corporations anticipate their massive, looming windfall. As David Dayen, writing for The Intercept, notes:
U.S. corporations are already beginning the process of pocketing the winnings from the tax bill jackpot they expect to hit any day now, undercutting, in a remarkably public fashion, the pretense that the corporate tax cut will lead to greater investment in job creation.
Since the Senate passed its version of the tax bill on December 2, 29 companies have announced $70.2 billion in stock buybacks, a maneuver that uses company cash to buy its own shares, which then drives up the price of those shares, rewarding major investors and executives whose compensation is directly tied to the company’s stock price.
To their credit, this is exactly what these corporations said they would do. The only people who told you that this radical and unprecedented gutting of the public Treasury was going to benefit ordinary Americans—that is, those who are not corporate officers, directors, and CEOs—were the Republican legislators in the Congress and Senate.
Here is Home Depot’s CFO, Carol Tome, a few weeks ago during that company’s earnings call:
If it were to happen in 2019, we might use the tax — cash tax savings to invest in the business and then use — generated cash to back buy [sic] shares, it’s all fungible. The point is, we’re going to generate a lot, we may get some from tax reform and we will use it. We will invest back in the business, and we will return it to our shareholders.
For Home Depot, “return it to our shareholders” meant a December 6, 2017 buyback, designed to boost the price of its shares. The only people that truly see a significant and lasting benefit from such actions are the company’s officers and directors who are compensated to the tune of tens or hundreds of thousands of shares in the company—and possess the unique knowledge of when to cash out. The ordinary investor—usually not someone holding thousands of shares in any single company--will see very, very little of these gains over the long run, when the now-burning stock market inevitably and drastically corrects itself. As Dayen puts it:
The spectacle of companies announcing buybacks before the ink dries on the GOP tax bill ends all debate, if there was any left, on whether the tax cuts will lead to more jobs and better wages, or mass shareholder enrichment.
The other primary use that corporations intend to make of their unasked-for Christmas present is to finance mergers and acquisitions, consolidating their power to monopolize us, or just to replace us altogether with robots:
Other corporations are expected to use the windfall to increase mergers and acquisitions (M&A) or invest in automation. “Industry executives have been eagerly anticipating tax reform in earnings calls, interviews and casual conversation all year. Multiple CEOs have projected major M&A activity will follow if any kind of corporate rate reduction is finalized, further accelerating the rapid pace of consolidation in the industry,” wrote one industry publication about how waste companies are anticipating tax reform.
Provisions in this tax legislation permitting the repatriation of funds stashed overseas at a reduced tax rate will also go straight into the pockets of these highly compensated corporate officers. Oracle, for example—had $52 Billion parked overseas at the end of 2016—the fifth most of any so-called “American” company. The company announced a buyback of $12 Billion six days ago, which will swell, among others, CEO Larry Ellison’s portfolio immensely.
And amidst all the hearty back-slapping and fist-pumping by Republicans it's easy to forget that all this money funnelling in to the family trust funds and estates of these corporate officers is the same money that is supposed to fund programs like Medicare and Social Security.
This was not only predictable, but predicted. Republican House and Senate members who voted for this bill were pointedly asked about the potential that corporations would simply pocket the money and fail to provide any benefit in terms of jobs or wage growth. Nearly all of them minimized or simply waved off the prospect. Or, like these three, they admitted they had no idea what was going to happen:
Rep. Mark Sanford, R-S.C., admitted that they don’t really know what corporations will do with the money. “Well, from the standpoint of tax policy, you can’t dictate how a corporation is going to rebalance their balance sheet as a consequence of tax change. So what I’d say is it’s the intended and hoped for effect of the bill that they’ll invest … but it’s not the guarantee of the bill,” he said.
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“Talk to a Ways and Means [Committee member], I don’t know anything about [that],” Rep. Fred Upton, R-Mich., responded when asked.
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[Freshman Rep. Matt Gaetz, R-Fla.]: “Not every instance of a buyback of stock is bad. Sometimes that can help spur more growth. We’ll see.”
“We’ll see” is about as pathetic an excuse for radically distorting the American economy to benefit the very rich as can be imagined. The reality is that we’ve already begun to see the starkly inequitable consequences of this abominable legislation, even before it is signed into law.