Tuesday, February 27, 2018

What Are Corporations Doing With The Funds From Their Tax Cuts?

Corporations are using the windfall from the cuts in their tax bill just like survey's said that they would.  They are buying back their shares, which increases the value of the unsold shares;  they are paying higher dividends to shareholders and they are looking to acquire other companies.  Since corporate executives are also large shareholders that is good for them.  It is also good for the richest 10% which owns 84% of corporate stocks.  That's good news for many of us, but that is not how the tax cuts were sold to the public.  They were told that corporations would use the funds to purchase capital equipment, build new plants and to increase wages.  Each of those outcomes would lead to higher economic growth, more jobs and higher wages.  Corporate executives are not interested in stimulating GDP growth.  They get measured and rewarded every quarter on movements in their stock price.  Making investments in projects that may increase the stock price a couple of years from today is not high on their priority list.  That, of course what they told economists in the surveys.  Apparently, Trump and his administration decided that it made more political sense to convince its base that they succeeded in passing a middle class tax cut.  Good politics but bad economics.

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