Bonuses Aside, Tax Law’s Trickle-Down Impact Not Yet Clear

WASHINGTON — There are good ways to start measuring how much the Trump tax cuts might be helping American workers. Tracking the bonus announcements flowing from corporations is not one of them.

Those announcements, which include $2,000 in stock grants for Apple employees, up to $1,000 for certain workers at Walmart and $1,000 bonuses for Bank of America employees, are both real money and smart marketing. President Trump and top Republican lawmakers have praised many of the companies that are disclosing tax-cut-fueled bonuses and wage hikes.

For the most part, though, they are not indicative of the windfalls that companies are reaping from the $1.5 trillion tax law — and how much of that money that might trickle through to workers in the years to come.

Companies are acknowledging this in their fourth-quarter earnings reports and other financial disclosures, which earmark just a sliver of their future tax savings for direct and indirect investments in workers.

Bank of America’s bonuses will cost the bank $145 million in 2018, or about 5 percent of the nearly $2.7 billion in savings it is expected to reap in 2018 from a lower, 21 percent corporate tax rate. Apple’s bonuses will cost $300 million, a fraction of the $40 billion, at least, that the tech giant is saving from a single provision in the law, which allows it to return earnings held overseas at less than half the rate it would have paid under the old system.

And two days before Walmart snagged glowing headlines for handing out $400 million in bonuses and lifting its minimum wage at a cost of $300 million, the nation’s largest retailer by sales unveiled a plan to buy back company-issued debt. The cost of the buyback: $4 billion.

The gap between what companies are saving and how they are, so far, rewarding workers, doesn’t mean that the new law won’t eventually lead to substantial wage increases. Economists across the political spectrum agree it’s simply too soon to tell whether — and to what degree — that will happen.

The flurry of high-profile bonus announcements “are hard to interpret,” said Mihir Desai, an economist at Harvard Business School and Harvard Law School whose research supports the idea that corporate tax cuts lead to at least modest wage increases. “They may well be evidence for these gains, but just as well may be an example of savvy public relations. The reality is we’ll have to wait for a few years and good empirical work to really know the answer.”

 

 

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