“My council of economic advisors estimate that this [tax cut], along with a lower business tax rate, will likely give the typical American household around a $4000 pay raise. And that is money that will be spent.” – Donald Trump, October 17, 2017 at the Heritage Foundation’s annual President’s Club meeting.
A $4,000-pay raise. Sounds pretty good, doesn’t it? Now that Trump’s Tax Cut and Jobs Act has been passed and corporations are receiving huge tax cuts, let’s look at whether or not Trump’s claim has come to pass.
The Americans for Tax Fairness website “Trump Tax Cut Truths” examines what corporations are actually doing with their tax cuts. Their analysis shows that only 4.3% of workers—6.3 million out of 147.6 million workers in the U.S.—are getting a wage increase or one-time bonus from their employer. Only 1.7 million (1.15%) of U.S. workers have received a pay raise.
Out of 26 million U.S. businesses, only 383 are providing one-time bonuses and/or wage hikes to their workers for which the cost has been announced or able to be estimated. Corporations are getting nine times as much in tax cuts as workers are getting in bonuses or wage increases.
Out of 42 Pennsylvania-based firms on the Fortune 1000 list, only three (highlighted in blue in Chart 1) have announced bonuses or wage increases for their employees (Comcast, Erie Insurance Group and PNC Financial Services Group). The other 39 Pennsylvania-based companies (not in blue) have made Americans for Tax Fairness’s list of “Corporate Cheapskates.”
Chart 1: Pennsylvania-Based Companies on Fortune 1000 List Who Gave Bonuses or Wage Increases (Highlighted in Blue)
Another claim by proponents of this legislation is that Trump’s tax cut will create jobs. However, 96,096 private-sector jobs at 185 companies have been cut since the tax cut legislation went into effect. This is an underestimation because some large corporations like Amazon and Wells Fargo have not announced how many layoffs they’ve had.
So, if businesses aren’t spending their tax cuts on their workers like Trump and his economic advisors allege, what are they spending it on?
Companies are spending their tax cuts on stock buybacks. Stock buybacks, or a company using its own money to buy its own shares, are a way for companies to boost its stock price. These buybacks go straight into the pockets of companies’ wealthy investors—the richest 1% own 40% of all stock, and the richest 10% own 84% of all stock.
Corporations are spending 39 times as much money on stock buybacks than they are on wage increases or bonuses. Authorizations for stock buybacks have increased $253 billion since the Tax Cut and Jobs Act was passed, compared to the $6.5 billion that workers have received.
Despite Trump’s claims to the American people that this tax cut will create a windfall to middle-class Americans, the evidence shows otherwise. Most workers have not seen a pay raise. But wealthy stockholders sure have.