S&P Dow Jones Indices reported last Monday that corporate buybacks reached a record-breaking $806.4 billion in 2018, thanks largely to a sweeping tax cut package passed by Republicans in 2017. Tech giants led the pack with Apple alone buying back $74.2 billion, followed by the pharmaceutical industry.
This is great news for the owners of those corporations, but not so much for the American workers still waiting for the $4,000 raise the GOP assured them.
Republicans introduced the Tax Cuts and Jobs Act (TCJA) with a promise for Americans: more jobs and better wages. Lowering corporate taxes from 35 percent to 21 percent would free up money for new manufacturing plants, research and development, and employees’ paychecks. They claimed that after the cut, corporations would finally make the investments needed to create jobs and inject new life into an economy many Americans found themselves struggling in.
They could have, but they didn’t, never had to, and never intended to. A corporation does not exist to design smartphones or manufacture insulin; it exists to increase value for its shareholders and profits for its owners. Giving workers a raise is not usually the first thing corporations turn to to make that happen. Buying back stocks (and the dividends that come with them) is a much more direct approach.
Basic business accounting tells you that sales minus costs is equal to pre-tax profits. Pre-tax profits minus taxes is equal to profits to owners. Republican politicians seem convinced that the share of profits that flows to corporate owners is set in stone. Therefore, raising taxes must increase costs for consumers, while cutting them reduces them, or better yet helps pay for business investments like facilities, materials, and employees, ultimately allowing businesses to sell more and grow.
But any actual business person can explain that it doesn’t actually work that way. Corporations already sell as much as possible and pay their workers exactly what they need to pay in order to provide whatever service or product they are selling, maximizing the profits left after those costs are accounted for. When taxes are cut, that extra money is 100 percent profit for owners, free and clear.
When corporations buy back their stocks, they’re not putting money into the American economy, they’re putting it into the portfolios of the wealthy investor class. After relying on investor money and employee labor to grow the value of their enterprise, they’ll buy back as much of it as they can to plump up their share of the profits before they share a red cent with the workers that got them there.
Corporate wealth hoarding not only fails to help working families and communities, but also undermines the real engine of economic prosperity: consumer spending. Tech companies don’t buy groceries at the corner market. Pfizer doesn’t get its hair cut at the neighborhood barbershop. But all the raises American workers never got, raises that could have helped local businesses and communities thrive, went straight into corporate portfolios.
Republicans tried to sell TCJA by saying tax cuts would incentivize corporations to grow, but the notion that tax breaks are needed to incentivize corporate growth is absurd. After all, the wealth that growth creates is its own incentive. Huge corporations and their uber-wealthy owners don’t need a break, they need to pay their fair share. Instead of cutting corporate taxes in the vain hope that corporations will invest in workers, Congress itself should invest in the programs and services that help give Americans a fair shot at prosperity, and count on workers to invest in themselves and their communities by ensuring them a living wage.
Of course, Republicans never seriously expected their plan to help ordinary Americans. That was just the sales pitch. The few parts of the bill that give individual taxpayers any relief are set to expire in 2025, while the corporate provisions are evergreen. Billionaires and the GOP politicians they’ve purchased are going to keep telling Americans that down is up, red is blue, and corporate tax cuts help workers, but unlike them, the numbers don’t lie.
Morris Pearl is former managing director at BlackRock, Inc., and Is chair of the Patriotic Millionaires, high-net worth Americans, business leaders, and investors who are united in their concern about the destabilizing concentration of wealth and power in America.