You don’t need to follow the president’s Twitter feed to read glowing accounts of the massive tax cuts he championed through Congress late last year. Simply skim the glitzy headlines and press releases coming out of corporate America these past couple months, where CEOs and public relations firms are working overtime to tell you about all the worker bonuses they’re doling out.
“Today, we are building on investments we’ve been making in associates, in their wages and skills development," Walmart CEO Doug Macmillan said in a company press release. “Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S.”
Underneath this PR spin is a much more sinister story. Many of these bonuses aren't what they appear to be: Many of these companies, Walmart included, are actually laying off workers. One devious feature of tax cuts-equal-bonuses messaging is that new tax law isn't even responsible for many of the bonuses—it could even make such bonuses less likely. The campaign is part of an effort to sway public opinion in favor of Republicans in 2018, so big corporations can take a huge tax cut and run.
The con looks like this: corporations are, one after another, announcing new, “one-time” bonuses for their workers, which, they say, are made possible by the Trump-GOP tax cuts that reduced the corporate tax rate from 35 percent to 21 percent. Hundreds of businesses have announced bonuses, including household names like Walmart, Home Depot, and Lowes. They were anxious to give out those supposedly generous bonuses, so the story goes, but had to wait until the tax law changed. Once the new law was passed, they were free to do right by their workers.
Those bonuses may not be as generous as they appear. According to The New York Times, many of those flashy $1,000 bonuses require 20 years of seniority. Most workers stay in their jobs for around three years, not 20. Companies are only paying $250 or so to these folks, sometimes less. Still, that's better than the bonuses that could've been paid under the old tax law, right?
Actually, it turns out the bonuses are mostly being made under the old tax law, not the new one. Which is to say, they are not the result of the Trump tax cuts, which are much friendlier to corporations than workers. But corporations want voters to think those bonuses are thanks to Trump: It's all about helping Republicans in November.
For years, the Republican Party has pursued corporate tax cuts with a singular focus. The 35 percent corporate tax rate killed American innovation and job creation, corporate leaders and Republican pundits claimed. There was one problem: The American people weren't buying ii.
Poll after poll last year showed that the majority of the public saw no reason to give a massive tax break to the wealthiest individuals and most profitable corporations. Neither did tax policy analysts. Our IPS colleague Sarah Anderson found that large, profitable companies that already paid an effective 20 percent tax rate or less after loopholes actually cut jobs compared to the rest of the private sector.
Republicans in Congress surged forward anyways, buoyed by massive spending by corporate America and the donor class. The bill passed without a hearing or a single Democratic vote. The hallmark of the bill, which blew a $1.5 trillion hole in the federal budget, was a permanent reduction in the corporate tax rate from 35 percent to 21 percent. By now it is clear that the tax bill’s proponents intend to fill that hole with spending cuts to domestic programs that help America’s poor.
Corporations win, poor people lose, end of story. But that's not the story corporations or their GOP backers want told. Faced with a tough re-election prospects in the 2018 midterm elections, the Republican majority in Congress needs a major swing in how the public views their biggest legislative accomplishment, which happens to be the most unpopular piece of major legislation ever passed in modern history.
The Republican donor class, namely the Koch brothers and their vast dark money network, have already announced plans to spend tens of millions of dollars promoting the tax bill. Koch-funded Americans for Prosperity came out of the gates early with a $4 million ad campaign targeting two vulnerable Democratic senators for voting against the tax bill.
Still, the Kochs have their work cut out for them and their own allies are making it tougher. House Speaker Paul Ryan tweeted his excitement about the reported tax savings for a secretary in Pennsylvania—a whopping $1.50 a week. By comparison, the Koch brothers stand to gain about $27 million per week from the tax bill, according to Americans for Tax Fairness. When social media users pointed that out, Ryan quickly spiked the original tweet.
Add to that mix major lay-offs announced since the tax bill’s passage in December by a growing list of companies—including Kimberly-Clark, Pepsi, Walmart, and even Carrier, which previously took tax handouts from the White House in exchange for keeping jobs at an Indiana plant. Walmart alone is laying off nearly 10,000 workers.
But the challenge facing Republican donors just can’t be met with Super PAC contributions. A much more effective tool than ad buys is to flash some real cash. Splashy worker bonuses are far better publicity than a temporary $1.50 boost to a secretary's paycheck. Indeed, corporations are only too happy to play their part in the charade.
In a letter to employees that he felt compelled to publicize, Ronald Cameron, the owner and chairman of Mountaire Corporation, started by thanking Jesus Christ for the company’s great year in 2017, then told employees how encouraged he was that President Trump and the Republican Congress had reduced taxes for businesses. Because of the tax reduction, Cameron explained, he was pleased to announce a one-time bonus for hourly employees.
For Cameron, the notion that his corporation needed a tax reduction to afford worker bonuses is beyond laughable. In the last election cycle, Cameron made over $14 million in political contributions to Republican causes, including $2.4 million to Trump.
Cameron came up with more money for Republican causes in 2016 —before the Trump tax cuts—than his corporation could find for his 6,000 employees afterward. Cameron’s announcement, in which he heaped more praise on Trump and Jesus than on his employees for the company’s success, makes it clear those bonuses were more about promoting the Republican cause than they were about thanking Mountaire’s hourly employees. According to a recent survey, those employees make just $9.43 to $13.52 per hour.
Some companies have gone even further. Spellex Corporation CEO Sheldon Wolf went so far as to print “Trump Tax Cut and Jobs Act” in the memo section of the $1,000 one-time bonus checks he gave his 50 employees. Wolf made no qualms about the fact that he was trying to get his workers to support Trump. He also appeared on Trump's favorite news show, “Fox and Friends,” in support of the bill. “I wanted to do it because I’m excited about the new tax plan from Trump and the GOP," he said.
It’s unclear why so many businesses settled on the $1,000 figure for their bonuses, but it likely has more to do with PR than accounting. As Stephen Gandel at Bloomberg noted, Trump economic advisor Gary Cohn promised the tax cuts would mean a $1,000 pay boost for every worker. Perhaps, Gandel argues, these firms are rushing in to prove Trump right—and gain his good graces at the same time.
But the most incredible part of the entire charade is that, for the most part, these splashy bonuses actually come courtesy of last year's tax law. This year's may way well increase corporate bottom lines, but it may actually make such bonuses less common. A corporation may claim a tax deduction for a bonus in the year it commits to pay the bonus, even if the bonus won’t be paid until the following tax year. And, in a strange twist of corporate tax law, tax years vary based on when the corporation sets its fiscal year.
So, all those corporations that announced bonuses in late December were doing so in order to claim deductions under the old tax law. The same is true of corporations that made public announcements in January, if the corporate decision to pay the bonuses was made in December.
That decision makes perfect sense from a tax planning perspective. Whatever a corporation pays in wages produces a corporate tax reduction equal to the amount of those wages, times the applicable tax rate. That is, if a company pays workers more, its corporate profits are lower, and so are its corporate income taxes. Thanks to this math, the corporate tax benefit from paying bonuses is actually much greater at the old 35 percent rate than it'll be under the new 21 percent rate. Put simply, it’s a higher tax rate, not a lower one, that incentivizes pay bonuses.
What’s interesting about the seemingly non-stop announcements of pay bonuses is the timing. Although most corporations use a calendar year for their tax year, many don’t. The ones that don’t, have until their end of their tax year to declare bonuses. For those companies, the tax advantage of the one-time bonus goes away by the end of 2018—but that leaves plenty of time between now and Election Day to grease the skids. Walmart, Home Depot, Lowes, and Best Buy all have taxable years that ran through the end of January or early February. Each of those corporations structured employee bonuses under the old tax law, although they appeared to come out this year.
Walmart stated specifically that the bonus would be paid in the fiscal year ending on January 31, 2018. For corporations with taxable years ending January 31, 2018, the rate at which the IRS subsidizes employee bonuses is about 33.8 percent. So Walmart is taking a nice tax break for those bonuses—even while laying off 10,000 workers.
U-Haul, which uses a taxable year ending in March, just announced bonuses totaling $23 million for its 28,000 workers. Thanks to the old tax law, U-Haul’s after-tax cost of those bonuses will be about $16 million, which buys nice publicity, but is small change compared to the $5.4 billion combined net worth of its top two shareholders, the children of the man who founded the company.
The number of bonus announcements will taper off deeper into the calendar year. But each month, right up through November, there will be at least a few corporations facing the end of their final taxable year under a higher corporate tax rate. Don’t be surprised if they roll out more impressive-sounding bonuses. This pattern will continue about as long as it takes to help Republicans get re-elected.
After November, American workers probably won't hear much about bonuses. The new 21 percent rate will be fully phased in by then, thus increasing the after-tax cost of the bonuses. And the 2018 election, the true motivation for these “one-time” bonuses will be over. That’s the only thing about them that was honest.