Corporate spending isn’t taking off the way Republicans predicted in the wake of a massive $1.5 trillion tax cut for companies, according to the latest figures.
The Wall Street Journal called this “something of a surprise,” since the idea of the tax break was ostensibly that corporate business would take off with the cash infusion from the public and workers would share in the boosted fortunes. That’s not happening.
Economists look at orders as an indication of corporate spending, and right now those are remaining relatively flat.
Orders for durable goods (heavy-duty equipment such as machinery) dropped 1.7 percent in April over the previous month, according to figures released Friday by the Commerce Department. That was largely driven by a drop in aircraft orders. Orders for nondefense capital goods excluding aircraft — a key gauge of corporate spending — increased by only 1 percent in April (after dropping 1.2 percent in March). That’s about where it’s been for the last six months, the Journal notes, even before the tax cut.
What’s happening to all that tax money corporations no longer have to pay? For one thing, it’s being used to buy other companies. There were $1.5 trillion in merger and acquisition deals in the works in the first quarter, compared with $759 billion over the same period last year.
Corporations are also sharing the wealth with stockholders by increasing dividends they pay out. In addition, there’s a record stock-buyback boom going on, which, again, benefits stockholders, not workers. U.S. companies reported buying back their own shares at a rate of $6.1 billion a day the first quarter of this year, MarketWatch reported.
“The buyback boom early this year confirms our view that the main use of corporate America’s tax savings will be takeovers and stock buybacks rather than capital investment or hiring,” said an analysis from Trim Tabs Investment Research, which tracks the data.
And while the jobless rate is at a 17-year low, wage hikes are barely budging the needle, according to the latest figures from the Department of Labor. They increased an average of just 2.6 percent in April over the previous year — and that rate was down from March. If that continues, annual increases will be nowhere near the $4,000 average household hikes that President Donald Trump promised American workers as part of the tax cuts.
“Wage growth disappointed,” LendingTree chief economist Tendayi Kapfidze told the San Antonio Express-News after the statistics were released early this month. “It may be that changes in the labor market have reduced [employees’] negotiation power and wages are weak despite the low unemployment rate.”
None of this likely comes as a surprise to politicians like Sen. Marco Rubio (R-Fla.), who voted for the massive tax cuts but acknowledged there’s no proof they will help the American worker.
“There is still a lot of thinking on the right that if big corporations are happy, they’re going to take the money they’re saving and reinvest it in American workers,” Rubio told The Economist in April. “In fact, they bought back shares, a few gave out bonuses. There’s no evidence whatsoever that the money’s been massively poured back into the American worker.”