As workers wonder where their share is, employers warn of raises

Bill Knight column for Thurs., Fri. or Sat., July 26, 27 or 28, 2018

Between wage hikes and bonuses, the Trump administration last year predicted that average U.S. household income this year would jump by $4,000 because of “tax reform.”

Trump economic adviser Kevin Hassett said, “There really shouldn’t be much doubt about that.”

If you’re like most Americans, you’re wondering and waiting about that raise.

Meanwhile, there seems to be a concerted campaign against pay increases.

President Trump has told many lies (thousands, according to a Washington Post fact-checker reckoning). One of the biggest falsehoods was the promise that the tax cuts passed last December – “The Tax Cuts and Jobs Act,” which dropped corporations’ rate from 35 percent to 21 percent as a way to supposedly create jobs – would mean more take-home pay for workers.

The White House claims that 3 million workers have received one-time bonuses from employers including Disney and Comcast, but just 4.3 percent of U.S. workers will receive any such bonuses or wage increases because of the law, according to an April analysis of Fortune 500 companies by the Americans for Tax Fairness coalition.

Elsewhere, American Prospect magazine reported that total pay hikes and bonuses to workers as of mid-June totaled about $7 billion – just 9 percent of the $77 billion in tax cuts corporations have enjoyed.

So where’s the other 91 percent money going? Overwhelmingly, the benefits are going to the richest Americans, as corporations use the savings to buy back their own stock

Buybacks inflate stock prices by eliminating shares – making them scarcer. Nobel Prize-winning economist Robert Shiller of Yale University described buybacks as “smoke and mirrors.” This bit of staged magic artificially boosts share value but also disguises a key measure of a corporation’s profitability: Corporations seem better off than they are.

Such stock manipulation also worsens income inequality as phony corporate gains go to investors in the stock market, often beginning with companies’ top executives.

“This very partisan corporate tax bill has fueled a surge in stock buybacks that is hurting economic growth and shared prosperity for workers,” U.S. Sen. Tammy Baldwin (D-Wis.) told CNNMoney. “This exposes the false promise of trickle-down economics.”

Since 2008, U.S. companies have spent $5.1 trillion to buy back their own stock, according to the stock market research firm Birinyi Associates. Between 2007 and 2016, companies in the S&P 500 devoted 54 percent of their profits to stock buybacks, according to research by economist William Lazonick of the University of Massachusetts - Lowell, Co-Director of the Center for Industrial Competitiveness.

“This was not good for the U.S. economy,” Lazonick said.

Indeed, consider the numbers: $5.1 trillion in a decade means than corporations spent $510 billion a year on stock buybacks, which translates to $42.5 billion per month.

So: Where does the money NOT get spent? Better pay for everyday workers, job/skills training, hiring more employees, improving production, YOU.

Advocates of corporate buybacks say that boosting value to shareholders is better than hoarding wealth. That logic is like endorsing car thefts as preferable to home foreclosures.

As to that appearance of an energized employer resistance to using profits to fairly compensate workers, a series of stories in the dominant news media has lent credence – cover – to employers.

The New York Times, Wall Street Journal and Washington Post all have dutifully published uncritical pieces expressing companies’ claims that better pay jeopardizes the economy.

“It’s clear that many in the media are terrified by the prospect that as the labor market gets tighter, workers might get a larger share of the pie,” said economist Dean Baker of the Center for Economic and Policy Research in Washington. “Perhaps this should not be surprising when billionaires control major news outlets, but it does mean that economic reporting might be getting pretty far out of line with economic reality.

“If workers did see pay increases at the expense of profits, they would just be getting back some of what they have lost in this century,” he continued. “The after-tax profit share of national income rose by almost three full percentage points between 2000 and 2016. That would correspond to an average loss of almost $3,000 per worker per year.

“Corporations were happy to take advantage of the weak labor market, especially in the years of the Great Recession, to increase their profit share,” he added. “Now they are warning of disaster if they have to give back some of their gains if the labor market continues to strengthen.”