Trump's tax cut is fueling stock buybacks, not wage increases
Donald Trump's promise that corporations will use his giant new tax cut to make new investments and raise workers' wages is proving to be about as truthful as his promise to release his tax returns.
The results are coming in, and guess what? Almost all the extra money is going into stock buybacks. Since the tax cut became law, buy-backs have surged to $88.6 billion. That's more than double the amount of buybacks over the same period last year, according to data provided by Birinyi Associates.
Compare this with the paltry $2.5 billion worth of employee bonuses corporations say they'll dispense in response to the tax law, and you see the bonuses for what they are: a small fig leaf to disguise the big buybacks.
If anything, the current tumult in the stock market will fuel even more buybacks.
Stock buybacks are corporate purchases of their own shares of stock. Corporations do this to artificially prop up their share prices.
Buybacks are the corporate equivalent of steroids. They may make shareholders feel better than they would otherwise, but nothing really changes.
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Money spent on buybacks isn't reinvested in new equipment, research or factories. Buybacks don't add jobs or raise wages. They don't increase productivity. They don't grow the American economy.
Yet CEOs love buybacks because most CEO pay is now in shares of stock and stock options rather than cash. So when share prices go up, executives reap a bonanza.
At the same time, the value of CEO pay from previous years also rises in what amounts to a retroactive (and off the books) pay increase -- on top of their already humongous compensation packages.
Big investors also love buybacks because they increase the value of their stock portfolios. Now that the richest 10 percent of Americans own 84 percent of all shares of stock (up from 77 percent at the turn of the century), this means even more wealth at the top.