Citigroup, one the country’s four mega-banks, is taking a $22 billion loss from President Trump’s tax plan. But the banking giant is not worried. In fact, its stock ticked up and its top executives are elated. That’s because the loss is a mere blip on the radar—a one-time cost for bringing back profits stashed overseas. The real bonanza is on the horizon.
“Tax reform not only leads to higher net income and increased returns but also serves to strengthen our capital-generation capabilities going forward," CEO Michael Corbat pronounced.
Citigroup is not the only bank projecting an even rosier future. As The New York Times reported, the country’s financial institutions are perhaps the biggest winners of all. JP Morgan Chase (the biggest bank behemoth of them all) and Wells Fargo both expect to pay corporate tax rates of 19 percent next year—about one-third less than what they paid in 2016. Combined, the cut will save the two banks more than $7 billion just this year.
In tandem with a concerted effort to roll back or undermine financial safeguards, Trump’s gargantuan business tax cuts have made the country’s most powerful banks perhaps the biggest winners of all.
With dollar signs in their eyes, dozens of banks made savvy public relations moves, glossing over their intentions to pump new profits into share buybacks and increased dividends. For public consumption, they amplified news of pay bumps for workers. As the Times reported, since the tax cuts passed, more than 70 banks have either increased minimum pay or pledged to provide raises and bonuses for its workers.
For instance, Wells Fargo announced that it will gradually increase its minimum wage to $15 an hour. That’s surely welcomed by its frontline workers, who have toiled away for years at low wages and under high pressure to reach sales quotas. But Wells Fargo hasn’t gone soft—minimum wages are already increasing around the country, as well as in the banking industry. These announcements are not a tribute to the power of Trump’s tax cuts, but to a tightening labor market.
On top of that, they’re also just small potatoes. Wells Fargo is expected to see added profits of $3.7 billion under the new tax law. As Slate’s Henry Grabar writes, “Boosting the pay of its 25,000 workers who make $13.50 an hour up to $15 an hour will cost $78 million. So slightly more than 2 percent of the company’s impending windfall, or pennies on the dollar that is the corporate tax cut.” The bank’s CEO Tim Sloan has already signaled that he intends to plunge the real bounty into the hands of shareholders.
Bank of America has announced a one-time $1,000 bonus for its 145,000 employees. Meanwhile it’s spending $5 billion—35 times more than its pay increases—on a new share-buyback program. For its part, Citigroup is in the midst of what Barron’s calls “one of the industry’s most aggressive” buyback programs, which juiced its adjusted earnings per share by 12 percent last quarter. Meanwhile, its executives have avoided commitments to increasing pay for its employees.
Trump and the GOP haven’t stopped at bountiful tax cuts for Wall Street; they’re also in the midst of an aggressive attack on the post-recession financial regulations instituted by Dodd-Frank. Congressional Republicans, aided by a handful of centrist Senate Democrats, are on the verge of passing legislation that would take a whack at Dodd-Frank by dramatically reducing the number of banks that must adhere to strict financial oversight procedures. It also includes giveaways to hedge funds and big banks with large investments in bond markets.
Trump has also installed his budget director Mick Mulvaney as acting head of the Consumer Financial Protection Bureau, which was created as an independent financial watchdog through Dodd-Frank. Mulvaney, who fundamentally opposes the existence of the agency, has quickly ground regulatory and oversight work to a halt and literally changed the mission of the agency to one of deregulation. The White House, meanwhile, is stocking the agency’s political positions with more friends of Wall Street.
As The New York Times reports, Trump’s financial regulators are actively trying to undermine the scope of Wall Street regulations. His Treasury Department is seeking to cut funding and staff for its own Office of Financial Research, another Dodd-Frank creation that is tasked with researching and identifying potential red flags in the economy.
From the Times, back in November:
At the Treasury Department, officials are trying to make it easier for financial firms to avoid being tagged as “too big to fail,” a designation that subjects them to greater oversight. A major banking regulator, the Office of the Comptroller of the Currency, has become more forgiving of big banks when it comes to enforcing laws. And the Securities and Exchange Commission is reining in the power of regional directors to issue subpoenas.
This is Trumponomics at its core. Tax cuts and deregulation for the rich and powerful banks (which, not ten years ago, very nearly took down the American economy), and flashy PR stunts for everyone else.
Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives’ age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren’t made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.