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Companies opt to use tax cuts for bonuses as wage gains remain hazy

The Associated Press

JetBlue Airways is among dozens of companies that have announced they are giving their employees bonuses following the passage of the Republican tax plan signed into law in December 2017.

The Associated Press WASHINGTON (AP) — American Airlines is handing out $1,000 bonuses to its employees. So are AT&T, Bank of America and Nationwide Insurance. The same for Comcast, JetBlue Airways and U.S. Bancorp.

Such announcements , coming from dozens of companies, have followed the passage of the Republican tax plan that U.S. President Donald Trump signed into law last month. The plan slashed the corporate tax rate from 35 percent to 21 percent. The companies say the bonuses they’ve announced are a way to share some of their bounty with their workers.

The bonuses are one-time payouts, not the permanent pay raises that Trump and congressional Republicans have said will eventually result from the corporate tax cuts. Over time, bonuses are far less valuable to employees than wage increases.

So far, most companies haven’t said whether any permanent pay increases are in the works. Economists caution that the corporate income tax cut’s effect on average pay, if any, might not become apparent for several years.

“As a worker, it’s great to get a one-off bonus, but that doesn’t guarantee anything for the next year,” said Stephen Stanley, chief economist at Amherst Pierpont. “You’d rather have the raise, because next year you’re working off the higher base.”

Eventually, Stanley thinks the lower corporate tax rates will lead to worker pay raises. He expects companies over the next several years to use some of their windfalls to invest in equipment that would make workers more productive and lead to higher wages.

Other economists remain skeptical that workers stand to receive sharp wage increases. They note that the corporate tax cut will overwhelmingly benefit shareholders and company owners. That sentiment is one reason stock market indexes are setting new highs almost daily.

“The bulk of the corporate tax cuts should accrue to people who hold stock in companies,” said Ethan Harris, chief economist at Bank of America Merrill Lynch. “Workers benefit much more from a cut in taxes on ordinary income. In other words, better to get a direct cut than a spillover from cuts to others.”

Beyond the worker bonuses that have been announced, typically for $1,000, about a dozen banks have said they will raise their minimum wages. A handful of mostly small companies, including Washington Federal Bank, have announced pay increases for most of their workforces. And a few, including Visa and Aflac, have said they will raise their contributions to their employees’ retirement plans.

On Wednesday, Waste Management became the latest large company to announce bonuses. It said it would hand out $2,000 for up to 34,000 employees.

In addition, U.S. workers will begin receiving more take-home pay, likely by next month, as lower tax rates for individuals under the Republican plan kick in.

The Communications Workers of America, a labor union, asked CEOs of large corporations to give workers the $4,000 average income gain that White House officials said would flow eventually from lower corporate taxes. AT&T, the first company to announce bonuses, said it chose the $1,000 bonus instead.

American Airlines, which also employs the communication union’s members, similarly decided to bestow a $1,000 bonus. The union said it appreciated the gesture but asserted in a statement that the bonus “falls short of the permanent wage increase that working families were promised.”

The White House has touted the announced bonuses as evidence that the corporate tax cut is benefiting workers, rather than just shareholders, and has dubbed the payouts a “Trump bonus.”

In some cases, the companies are sharing only a sliver of their tax-cut windfalls. Bank of America’s bonuses will cost it roughly $145 million — only about 4 percent of the $3.5 billion that Goldman Sachs estimates Bank of America will receive from the tax cut.Speech

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