Rather than invest in their workforce through new hiring and raising wages, a new report shows that U.S. corporations have bought back a record $1 trillion of their own stock in the 15 months since Republican members of Arizona’s congressional delegation cast votes for the GOP’s tax plan.
Arizona Republican Reps. Andy Biggs, Trent Franks, Paul Gosar, Martha McSally and David Schweikert all voted for the tax cuts. They were joined in the U.S. Senate by Jeff Flake and the late John McCain.
The total amount of announced buybacks since the tax law went into effect officially crossed the $1 trillion threshold last week, according to Americans for Tax Fairness, which advocates for progressive tax reform. In 2018, announced stock buybacks reached $910 billion, a huge increase over the previous record of $589 billion in 2007.
Stock buybacks are when a corporation purchases its own stock to inflate the value of each share, buoying the portfolio of investors. Half of U.S. households do not own any stock at all, and some economists say stock buybacks contribute to wage stagnation.
The report links the record buybacks with the GOP’s Tax Cuts and Jobs Act, which allowed corporations to keep more of their profits by slashing the tax rate from 35 to 21 percent. This meant the estimated effective tax rate on businesses fell to just 9 percent, well below the effective tax rate for households.
The Trump Administration sold the corporate tax cuts on the premise that the benefits would trickle down to lower- and middle-class households through job creation and higher wages. “More than 70 percent of this [tax cut] will be returned to workers,” White House Press Secretary Sarah Huckabee Sanders said when the law took effect.
McSally, who has since been appointed to the U.S. Senate, made a similar case at the time, explaining her position in an op-ed in The Arizona Republic.
“The Tax Cuts and Jobs Act also helps Arizonans by promoting a healthy economy that has more job opportunities with higher wages and benefits,” she wrote.
However, only 6 percent of corporate tax savings have been spent on raising workers’ wages. Instead, as some predicted, the windfall set off a buying spree of major corporations repurchasing millions of shares of their own stock.
Commercial banks, tech firms and pharmaceutical companies lead the list of the industries that have announced buybacks – including Apple with $100 billion in purchases planned, Wells Fargo with $40.6 billion, Cisco Systems with $40 billion, Qualcomm with $28.8 billion and Oracle with $24 billion.
Once illegal, buybacks may be contributing to wealth inequality
Executives use stock buybacks as a tactic to artificially elevate the value of a corporation’s stock by reducing the number of shares on the market, immediately increasing the value of the shares that investors already hold. Those shares are often held by corporate board members and executives themselves, who can also receive bonuses and other financial incentives for raising the value of their corporations’ stock.
Prior to the presidency of Ronald Reagan, stock buybacks were illegal. The practice has been on the rise in recent years and the corporate windfall in the aftermath of the GOP’s tax bill allowed corporations to greatly escalate their use.
Prior to the 2017 tax law, one study by the Roosevelt Institute and the National Employment Law Project found that “Lowe’s, CVS, and Home Depot could have provided each of their workers a raise of $18,000 a year” with the money they instead used to buy their own stock. The study also concluded that “Starbucks could have given each of its employees $7,000 a year, and McDonald’s could have given $4,000 to each of its nearly 2 million employees.”
With 2018 breaking all stock buyback records, those unseen raises would be even higher.
“With the purchasing power of the minimum wage low, unions all but defunct in the private sector, and less and less competition among employers, workers have no recourse to demand more money, even if there is plenty to be distributed to them,” Annie Lowrey wrote in The Atlantic last year. “Buybacks have perhaps thus helped stoke the extraordinary levels of income and wealth inequality the country has seen in the past 30 years, and particularly since the Great Recession.”
Last month, U.S. senators Bernie Sanders (I-Vt.) and Chuck Schumer (D-N.Y.) introduced legislation to stop corporations from buying their own shares until they first invest in their workers through better pay and benefits. With a GOP majority in the Senate, the bills are not likely to pass.