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Opinion Don’t let pay increases coming out of tax reform fool you

Walmart announced wage hikes for hourly employees and layoffs of about 7,500 workers with the closure of 62 Sam's Club stores. (Video: Reuters)

Rick Wartzman, director of the KH Moon Center for a Functioning Society at the Drucker Institute at Claremont Graduate University, is author of "The End of Loyalty: The Rise and Fall of Good Jobs in America." William Lazonick is an economics professor at UMass Lowell and president of the Academic-Industry Research Network.

Egged on by the White House, corporate America has spent the past few weeks touting how it is sharing its big Trump tax cut with employees in the form of bonuses and pay increases — an apparent validation of the trickle-down approach to economics espoused by the president and his Republican allies.

But when we look at the numbers, we see the opposite: The nation's workers are getting woefully little, at least relatively speaking. Peeking beyond the PR, our analysis finds that major corporations are planning to spend more than 30 times what they are putting in the wallets of employees on buying back their own stock — a practice solely meant to lift the fortunes of shareholders.

Deputy editorial page editor and columnist Ruth Marcus counts the reasons why she thinks the GOP tax bill is awful. (Video: Gillian Brockell, Kate Woodsome/The Washington Post)

Not that we're surprised. Favoring stockholders over workers continues a decades-long trend that has contributed to wage stagnation, exacerbated income inequality and slowed economic growth across the country.

To get a sense of how the pie is being divided, we collaborated with Emre Gome c of the Academic-Industry Research Network to tally the sums of commitments from the 44 companies in the S&P 500 stock index that, according to Americans for Tax Reform, are giving their employees a bonus or a raise because of the new law. When you add it all up, you get about $5.2 billion — $3.7 billion in one-time bonuses and an estimated $1.5 billion in annual wage increases.

But that total pales in comparison with the $157.6 billion in stock buybacks announced by 34 S&P 500 companies since early December, when the tax bill passed the Senate. Companies typically purchase their own shares in a bid to bump up the price — a move that tends to please Wall Street and swells the compensation of chief executives, who are paid largely in stock.

Admittedly, our calculations aren't perfect. Not every company has spelled out how many employees will see wages rise or by exactly how much. In such cases, we've assumed that the increase is at the most generous end of the spectrum and will affect the most employees. In other words, if we've erred, we've erred on the side of inflating the amount being given to workers.

To be clear, most of the companies that have said they'll be distributing some of their tax savings to their employees have not also announced a new stock buyback. But a few have. For example, Bank of America will provide a $1,000 bonus to its 145,000 employees "in the spirit of shared success." That will cost the company $145 million. In December, the bank also added $5 billion to its buyback plans, bringing its projected total to $17 billion by June 2018.

It is only fair to acknowledge that we haven't counted other gains to employees and communities that some companies have reportedly pledged because of the tax law, including additional contributions to 401(k) plans and philanthropic donations. Apple said last month that it would have a $350 billion impact on the U.S. economy over the next five years as it creates 20,000 jobs, builds a corporate campus and makes other investments — though it appears that much of this activity would have happened without the new tax law.

Still, even if you take all this into account, there's no way you'd match what is being channeled to stockholders. Not even close.

It wasn't always like this. Forty years ago, big companies usually paid out about half their profits to stockholders. The other half was reinvested in research and development, worker training, higher employee compensation and so on. Figures compiled by researchers at the Academic-Industry Research Network show, however, that 94 percent of profits over the past decade have gone to benefit shareholders directly through buybacks and dividends.

What changed? Beginning in the mid-1970s, a movement to "maximize shareholder value" above all other considerations gained currency. And in 1982, the Securities and Exchange Commission adopted a rule that allows executives to massively buy back the company's stock without fear of being charged with manipulating the share price — even though that is precisely what they are doing.

Soon, top corporate executives were being paid more and more in stock — making it in their personal interest to drive their company's share price upward in the short term. In this environment, corporations have come to view workers as an avoidable expense, not as an asset to invest in.

Some will argue that almost everyone benefits when stock prices climb. This is false. Research shows that the top 10 percent of wealthy U.S. households control 84 percent of the value of all shares.

Don't get us wrong. We applaud those companies that are making sure their employees get a piece of the Trump pie. But context is crucial. In the scheme of things, the American worker is still being handed crumbs.

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