TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, January 25, 2018

GOP Tax Cuts May Not Be Driving Corporate Generosity To Workers

Tax Reform WorksWashington Post, Economics May Not Be Driving Corporate Generosity:

Republicans have been touting the number of companies handing out employee bonuses and pay raises — such as Walmart and Bank of America — as a surprising sign that the Trump administration’s tax cuts are working their economic magic faster than anyone expected.

“It really is unbelievable to see just how many companies have stepped up,” House Majority Whip Steve Scalise (R-La.) told Fox Business. White House chief economic adviser Gary Cohn described it as “not even something we expected to see.” President Trump has tweeted eight times on the topic, calling the bonuses “an unexpected new source of ‘love.’ ”

And they’ve been keeping careful count, too. Staffers in Scalise’s office constantly update a running list of which companies have joined in, under the headline “Tax Reform Works.”

But a deeper look at the list of approximately 200 companies shows that more than economics is probably at play, with business experts and analysts saying that alternative motivations are likely to be behind the sudden flood of corporate generosity. One major Republican donor owns 11 of the firms on the list. Several companies are contending with problems with regulators in Trump’s administration. And so many companies have settled on the $1,000 bonus figure that it appears, to some, to be just as much about a public relations push as anything else.

“It’s a pretty cheap way to win goodwill on Capitol Hill,” Daniel Shaviro, a professor of taxation at New York University Law School, said of the companies. He said there is “no plausible theory” for rate reductions immediately resulting in bonuses. The argument for corporate tax cuts is they spur investment, which raises productivity and should boost wages over the long term — not in a few weeks, he said.

“It’s salesmanship,” said Aparna Mathur, an economist with the conservative American Enterprise Institute, who expects it will take three to four years for workers to see the benefits of tax cuts.

Mihir Desai, a finance professor at Harvard Business School whose research was used by the White House to estimate how tax cuts would boost workers’ wages, said he believed the recent wave of bonuses could reflect lower tax rates but also an effort “to take some of the heat off what corporations are currently feeling.”

The “heat” comes from reactions to a measure that permanently slashes corporate rates from 35 percent to 21 percent, while only temporarily lowering rates for individuals. A Gallup poll released last week found that just 33 percent approve of the tax law.

http://taxprof.typepad.com/taxprof_blog/2018/01/gop-tax-cuts-may-not-be-driving-corporate-generosity-to-workers.html

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Comments

There is a difference between suggesting that economics has nothing to do with a particular outcome, as the byline does, and suggesting that things other than economics contribute to the same outcome.

This is a bit like claiming General Motors giving its workers raises has nothing to do with market forces and everything to do with the federal auto bailout...

Posted by: MM | Jan 25, 2018 7:29:09 AM