More CEOs Contradict Trump and Republicans on Tax Cuts

More CEOs Contradict Trump and Republicans on Tax Cuts November 30, 2017

We’ve already seen polls that show that, contrary to the claims of Republicans, a corporate tax cut will benefit owners and shareholders rather than employees. Now Bloomberg News adds more evidence to the pile. CEOs of major companies are telling their shareholders that when the tax cut goes through, they’ll increase stock buyback programs and dividends rather than invest it in things that will create new jobs.

Budget550

The president has held fast to his pledge even as top executives’ comments have run counter to it for months. Instead of hiring more workers or raising their pay, many companies say they’ll first increase dividends or buy back their own shares.

Robert Bradway, chief executive of Amgen Inc., said in an Oct. 25 earnings call that the company has been “actively returning capital in the form of growing dividend and buyback and I’d expect us to continue that.” Executives including Coca-Cola CEO James Quincey, Pfizer Chief Financial Officer Frank D’Amelio and Cisco CFO Kelly Kramer have recently made similar statements.

“We’ll be able to get much more aggressive on the share buyback” after a tax cut, Kramer said in a Nov. 16 interview…

That money is also unlikely to spur hiring because companies are already well-capitalized and can bring on as many employees as they need, said John Shin, a foreign-exchange strategist at Bank of America Merrill Lynch.

“Companies are sitting on large amounts of cash. They’re not really financially constrained,” Shin, who conducted a survey of more than 300 companies asking their plans for a tax overhaul, said in an interview. “They’re still working for their shareholders, primarily.”

And therein lies the real reason why the corporate tax cuts will not create news jobs. Conditions right now are as conducive to new investment, which is what creates new jobs, as they could possibly be. Most big corporations have large cash reserves and, even if they didn’t, credit is extremely cheap because of low interest rates. If they believed that new investments, new plants and products or other forms of expansion, were likely to boost their profits enough to make them worthwhile, they’d already be doing those things. Nothing is preventing that, and in fact conditions are very good for it. But they obviously do not believe such investments would make their companies more profitable and make themselves richer.

So what are they doing with those large cash reserves? Increasing dividends and buying back stock, which boosts its value. And the only ones who really benefit from that are large shareholders. The claim that this will lead to a $4000 boost in earnings is simply ludicrous. Which is why the unions want them to put it in writing. If they really believe that average wages will go up, put it in the bill that if wages are not up by X percent after two years, the tax rates revert back. But the Republicans won’t agree to that because they know they’re lying.

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