The main argument President Trump has put forth to justify his proposed corporate tax cuts was just undermined by America’s richest corporations.
Corporations are salivating at the prospect of a possible 15 percent cut in their federal tax rate, but not for any altruistic reason. As Bloomberg reported on Wednesday, Fortune 500 companies like Pfizer, Coca-Cola, Cisco Systems, and pharmaceutical company Amgen say that if the Republican tax bill passes, they’ll simply use the extra money to buy back their own stock — which would raise stock prices and enrich corporate executives that own stock options.
“[Amgen is] actively returning capital in the form of growing dividend and buyback and I’d expect us to continue that,” Amgen CEO Robert Bradway told investors in October in response to a question about Trump’s tax bill.
“We’ll be able to get much more aggressive on the share buyback,” Cisco CFO Kelly Kramer told Bloomberg, when asked about the possibility of future corporate tax cuts.
These statements echo a Bank of America/Merrill Lynch survey of several hundred corporate executives from several months ago. When asked about how they would use extra money gained through the passage of additional tax cuts, the most popular answer was to pay down corporate debt, with stock buybacks coming in at a close second.
“Companies want to get their money back to buy stock and goose the stock price because their senior executives derive so much of their compensation from the stock prices,” University of Southern California tax law professor Edward Kleinbard told the Washington Post. “Their motives are completely suspect.”
Indeed, 93 percent of Amazon founder Jeff Bezos’ $100 billion net worth comes from his stock portfolio, which would only increase if Amazon used bonus cash gained from tax cuts toward stock buybacks. A 2013 report found that if Walmart redirected money used for stock buybacks toward raising worker pay, the company could pay a $15 hourly minimum wage to all of its employees without raising prices. In October, Walmart announced it was buying back $20 billion of its own stock over the next two years.
The fate of Trump’s corporate tax cuts is uncertain. Senate Republicans are aiming to pass their version of the bill before the end of the 2017 legislative calendar, although senators like Bob Corker (R-Tennessee), Susan Collins (R-Maine), and Steve Daines (R-Montana) have expressed concerns with specifics of the legislation. Senate Majority Leader Mitch McConnell (R-Kentucky) can only afford two defections from his own party in order to send the bill to the House of Representatives.
Matthew P. Robbins is a freelance economics contributor covering wages, budgets, and taxes. He lives in Chicago, Illinois with his husband and two cats.