The Republican tax cut, with its big benefit for corporations, was supposed to trickle down on lower-income people. The New York Times reports:
President Trump promised that his tax cut would encourage companies to invest in factories, workers and wages, setting off a spending spree that would reinvigorate the American economy.
Companies have announced plans for some of those investments. But so far, companies are using much of the money for something with a more narrow benefit: buying their own shares.
Those so-called buybacks are good for shareholders, including the senior executives who tend to be big owners of their companies’ stock. A company purchasing its own shares is a time-tested way to bolster its stock price.
But the purchases can come at the expense of investments in things like hiring, research and development and building new plants — the sort of investments that directly help the overall economy. The buybacks are also most likely to worsen economic inequality because the benefits of stocks purchases flow disproportionately to the richest Americans.
Buybacks are good for the stock market. Warren Buffet said he might put some of his company’s $28 BILLION windfall into buybacks. But rising stock prices don’t necessarily lift the economy.
At a news conference Thursday, the head of the White House’s Council of Economic Advisers, Kevin Hassett, acknowledged that many companies were spending their money on buying their own shares.
“Right now we’re going to have an adjustment where you see probably more dividends and share buybacks than wage increases,” Mr. Hassett said. “But going forward we’re going to see a lot of capital formation and wage growth.”
Free beer tomorrow.
(Yes, there have been announcements of one-time bonuses and even at a few companies some wage increases, but they’ve amounted to a small percentage of the corporations’ tax cut bonanza.)