Corporate Tax Giveaways Will Benefit Wealthy Shareholders – Not Middle Class Wages or Job CreationNovember 17, 2017
Despite claims from Republicans in Congress and in the Administration, corporate tax cuts will benefit corporations and the wealthy – not American workers. Corporate executives admit that they will use the massive windfall created by the Republican tax plan for share buybacks and dividend increases. These corporate tax giveaways will not “trickle down” to American workers.
You don’t have to take it from us. Even former President Ronald Reagan’s OMB Director says corporate rate cuts will translate into “share buybacks and dividends.” – “not at all” to American workers.
David Stockman, OMB Director under President Reagan:
STOCKMAN: “These corporate rate cuts, and it’s two trillion, will go into share buybacks and dividends and other returns to capital.”
CAVUTO: “So you have very little faith that they’re going to plow this into plant equipment or hiring folks.”
STOCKMAN: “I think not at all. … It’s going to go into dividends, it’s going to go into stock buybacks, it’s going to go into LBOs, it’s going to go into levered recaps. That’s why Wall Street is, you know, foaming at the mouth for this” [Fox Business, 11/15/17]
Business Executives Admit That Corporations Will Use Their Massive Tax Breaks For Stock Buybacks And Dividends To Shareholders
James Quincey, President and CEO, The Coca-Cola Company:
EISEN: What would you do with the money if you were able to bring it back from overseas, that cash?
QUINCEY: Well, some of our money is actually invested overseas, so we would bring some of it back and be able to invest more here in the US and actually, we would use some of it for dividends as we always do. And we'd use some of it for investment in the US business.
EISEN: What about jobs and wages? Does that argument work? Is that something – is that an area you would focus on and you would invest in?
QUINCEY: I think principally it's not our short term change. It's not like there’s a big box of money out there that suddenly comes back and gets reinvested by us in 2018. [CNBC, 11/16/17]
Derica Rice, CFO, Eli Lilly and Co.: “Some of our competitors may be more reliant on tax reform because they want to do maybe the megadeal, and they need greater access to their OUS cash. For us, it would give us greater latitude in terms of utilization, either to do -- to enhance the dividend more or to do greater share repurchase.” [UBS Global Healthcare Conference, 5/23/17]
Darius Adamczyk, President, CEO, and Director, Honeywell International Inc.: “Tax reform will be accretive to the overall outcome and offer greater flexibility for Honeywell. If tax reform occurs in its presently drafted form, the $17 billion could be deployed entirely in the U.S. and be apportioned amongst dividend, M&A, share repurchases and debt repayment.” [Honeywell International Inc Comprehensive Portfolio Review Conference Call, 10/10/17]
David S. Marberger, EVP & CFO, Conagra Brands, Inc.: “In terms of if there is corporate tax reduction and there's more cash, we bounce back to our capital allocation, right? In our balanced capital allocation where -- what do we do with our money and we're looking at our debt, we're looking at share repurchase, we're looking at acquisitions and then investment in the organic business. So that won't change, and we'll see how it all plays out.” [Q1 2018 Conagra Brands Inc Earnings Call, 9/28/17]
Kelly A. Kramer, CFO and EVP, Cisco Systems, Inc.: “But when tax reform happens, we will be much more aggressive on the buyback as well as continue as part of the dividend and ensure that we always have the flexibility we want for the strategic M&A.” [Cisco Systems Inc. Financial Analyst Conference, 6/28/17]
Karen W. Colonias, President, CEO & Director, Simpson Manufacturing Co., Inc.: “Beyond this, we will consider any benefit we may receive in the event of a tax repatriation holiday or potential corporate rate reduction as further funds for share repurchase.” [Q3 2017 Simpson Manufacturing Co., Inc. Earnings Call, 10/30/17]
Robert Bradway, Chairman and CEO, Amgen Inc.: “And then more broadly on capital allocation, obviously we have a track record of returning significant capital to our shareholders and to the extent that tax reform happens and provides greater flexibility for us, we'll take that into account in our capital allocation plans. But as you know, from our track record over the last many years, we've been actively returning capital in the form of growing dividend and buyback and I'd expect us to continue that.” [Q3 2017 Amgen Inc. Earnings Call, 10/25/17]
Ian Read, CEO, Pfizer Inc.: “Right now I believe we need to see tax reform or the absence of tax reform to understand what the market values are. We then would look at BD opportunities inside our opportunities of capital allocation, including share buybacks and dividends, investing in our own portfolio, and rest assured we will aggressively take the actions that we believe will improve the value to shareholders.” [Q2 2017 Pfizer Inc. Earnings Call, 8/1/17]
Amit Muni, CFO and EVP of Finance, WisdomTree Investments: “We'd have to wait to see at the time to see exactly what that tax reform is, but there really is no change in that philosophy. Overall, we're not a type of firm that's going to just let cash build. If we can't find a need for it, we're going to return it back to our shareholders in the most efficient way possible.” [Q3 2017 WisdomTree Investments Inc. Earnings Call, 10/27/17]
Navid Mahmoodzadegan, Founding Partner, Co-President & Director, Moelis & Co.: “So on the repatriation side, if companies are allowed to bring overseas cash back in the United States, certainly some of that money will be returned to shareholders in the forms of dividends and share repurchases, but we also think some of that money will free up M&A activity and will spur M&A activity.” [Q3 2017 Moelis & Co. Earnings Call, 10/25/17]
Karen L. Parkhill, Executive VP & CFO, Medtronic: “The least contested piece of tax reform is the repatriation piece. Should that happen, we would have 100% access, which would be very meaningful to us…. And so beyond this quarter in terms of share repurchase, it will depend on our ability to continue to untrap cash and have more access to cash. But in time, when we do have more access and are able to untrap, you can expect that we will be focused on continuing to pay back to our shareholders.” [Morgan Stanley Healthcare Conference, 9/11/17]
Harris Henry Simmons, Chairman, President, and CEO, Zions Bancorporation: “The tax rate, we'll see what happens with tax reform, as noted. We are going to be looking, as I noted earlier, to be a little more aggressive in the way we return capital to shareholders, which should reduce our share count. And we're also reducing our preferred stock layer of capital, calling $144 million of preferred this month, which will bring us down to -- closer to where the industry is operating.” [Zions Bancorp Annual Shareholders Meeting, 6/2/17]
Doug Bettinger, EVP and CFO, LAM Research: “If we do get corporate tax reform here in the US, it will enable us to have the flexibility to continue to buy back.” [Morgan Stanley Technology, Media & Telecom Conference, 2/28/17]
This is even more proof that corporate tax cut benefits flow to the wealthy and corporations – not American workers.
CNBC: CEOs Raise Doubts About Gary Cohn's Top Argument For Cutting The Corporate Tax Rate Right In Front Of Him. “A meeting of CEOs might seem to be a friendly gathering place for President Donald Trump's chief economic adviser Gary Cohn, former president of Goldman Sachs. But at a gathering of chief executives hosted yesterday by the Wall Street Journal, business leaders called into question one of Cohn's top arguments for slashing the corporate tax rate to 20 percent. When one of the Journal's editors asked the crowd if they planned to up their capital expenditure if the GOP's tax plan went through, only a smattering raised their hands. ‘Why aren't the other hands up?’ Cohn asked. … There's little evidence to support the claim that tax breaks boost employment numbers. A National Bureau of Economic Research study published in 2014 found ‘little evidence that corporate tax cuts boost economic activity’ unless implemented in a recession. Far from being short on cash, corporations are sitting on record amounts. The informal poll was not the only disappointment for Cohn on Tuesday. Another non-scientific poll conducted at the gathering found that more than half of the CEOs present didn't believe that Congress would pass a major tax bill by the end of the year.” [CNBC, 11/15/17]
Center on Budget and Policy Priorities: “The evidence indicates that most of the benefits from a corporate rate cut would go to those at the top, with only a small share flowing to low- and moderate-income families. Mainstream estimates conclude that more than one-third of the benefit of corporate rate cuts flows to the top 1 percent of Americans, and 70 percent flows to the top fifth. Corporate rate cuts could even hurt most Americans since they must eventually be paid for with other tax increases or spending cuts.” [CBPP, 10/11/17]
Treasury Department Office of Tax Analysis: “In summary, 82% of the corporate income tax burden is distributed to capital income and 18% is distributed to labor income.” [Distributing the Corporate Income Tax: Revised U.S. Treasury Methodology, 5/17/12]
James Nunns, Tax Policy Center: “The Tax Policy Center assigns 80 percent of the corporate income tax burden to capital and only 20 percent to labor (workers’ wages and fringe benefits).” [Fact Check.Org, 9/7/17]
Congressional Budget Office: “CBO has reevaluated the research on that topic, and in this report it allocates 75 percent of the federal corporate income tax to capital income and 25 percent to labor income.” [CBO, 7/12]
Joint Committee on Taxation: “In the long run it [JCT] distributes 75 percent of corporate income taxes and 95 percent of the taxes attributable to passthrough business income to owners of capital.” [JCT, 10/16/13]
Congressional Research Service: “Based on these models, it appears that most of the burden of the corporate tax falls on capital. … Thus the tax is a progressive one that falls on capital incomes and thus largely on higher incomes.” [CRS, 9/22/17]