Twenty-seven of the United States' biggest businesses have already spent about $100 billion buying back stocks from shareholders in 2018, a move that shows how the new Republican tax law is primarily benefiting wealthy Americans and large corporations, says a new report unveiled by three Senate Democrats.
But at a news conference in the Capitol, Sens. Ron Wyden (D-Ore.), Robert P. Casey Jr. (D-Pa.) and Sheldon Whitehouse (D-R.I.) said that their new report shows that the benefits seen by workers pale in comparison to the gains being reaped by company shareholders and corporate executives. Citing survey data, they said 2 percent of adults say they received a bonus or a raise because of the tax law.
“It's been 40 days and 40 nights since the bill passed, and we have seen a biblical flood in stock buybacks,” Whitehouse said. “We don't know where this is going to end. We do know it's great for shareholders and CEOs, whose compensation often rides on share prices.”
The dispute over the true victors of the Republican tax law has implications for the U.S. economy and the 2018 midterm elections, with Democrats working to cast it as a giveaway to the rich and Republicans arguing that it is ushering in broad economic prosperity led by business investment. The tax law, which cost more than $1 trillion, centered on permanently slashing the corporate tax rate from 35 percent to 21 percent and temporarily lowering income taxes for most Americans.
U.S. economic growth came in slower than expected at the end of 2017, but the economy still grew at a robust pace amid low inflation and strong private investment. Despite signs of an uptick, the wages for most American workers remain relatively stagnant.
Senate Democrats argued that low wages are being wrongly overshadowed by flashy announcements from corporations over the tax law's benefits. Wyden said he would be sending a letter to the Government Accountability Office asking for an additional report tracking the tax law's impacts, including on stock buybacks and on corporate repatriation.
At a news conference in late December, Trump cited Wells Fargo's decision to increase wages and charitable giving, changes the company says will cost about $215 million. In January, the bank announced about $22 billion in corporate share buybacks. Democrats noted that the corporate buyback involved more than 100 times as much money.
“Companies are directing billions in tax savings in one direction: up,” Casey said.
Conservatives disputed that substantial stock buybacks suggested shortcomings in the law. It's too early to see how the law will affect business investment, and corporate buybacks give money to investors who can then invest it elsewhere, said Brian Riedl, of the Manhattan Institute, a libertarian-leaning think tank.
“These buybacks don't disappear into a hole. The money tends to go back into the financial sector and business investment,” Riedl said. “In the short term, this is a form of reprogramming investments in the economy, and in the long term, the business will eventually ramp up their investments.”
But even while acknowledging it's probably too soon to gauge where the tax law is spurring more investment, other experts pointed out that low interest rates suggest that the tax law would be a failure if all it did was increase the circulation of cheap capital and help corporate shareholders.
“Firms already had access to all kinds of cheap investment capital, even before the tax plan,” said Jared Bernstein, who served as an economist to former vice president Joe Biden. “Absent evidence, as opposed to anecdotes, you can't assume the tax cut is going to lead to new investment, as opposed to more buybacks and further enrichment of the investor class.”