Next week marks the one-year anniversary of the Republican tax bill. On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act, shrinking the corporate tax rate from 35 to 21 percent and cutting taxes on private businesses by about 20 percent.
When Trump signed the bill that morning in the Oval Office, he boasted about the gains it would provide for all Americans. He claimed that corporations were already “giving billions and billions of dollars away to their workers” as a result of the $1.5 trillion tax cut package and pointed to a handful of big companies that promised to raise wages and give employees $1,000 cash bonuses — among them Walmart, Bank of America, and Comcast.
A year later, economic data shows that the tax bill’s benefit to workers was largely a mirage.
The left-leaning Economic Policy Institute recently crunched compensation data from the Bureau of Labor Statistics, showing that the much-touted bonuses did little to boost workers’ paychecks. In the past 12 months, cash bonuses only gave workers an extra 2 cents in average hourly compensation, adjusted for inflation. (This does not include bonuses tied to productivity goals.)
The reason is simple: Not enough money from the tax cuts has trickled down to employees. The exact amount is hard to pin down, as companies are not required to report how they used the tax savings, but one analysis shows that only about 4.4 percent of US workers got a wage increase or bonus as a result of the tax bill.
Instead, US companies have spent a record amount of money this year buying back shares of company stock — an effort to inflate their value for shareholders. US corporations have announced spending $1 trillion on stock buybacks so far this year. That’s a 64 percent increase from 2017, according to CNN Business. So it’s no mystery why the savings from the GOP tax bill didn’t trickle down to workers. Only a handful of companies (34 from the Fortune 500) said they are using the tax savings to invest in US operations.
Wages are rising, but so is inflation
Sluggish income growth remains one of the most persistent problems in the US economy, which is otherwise doing quite well. Unemployment is down, corporate profits have soared, and the economy is growing faster than it has in more than a decade. But wages are barely keeping up with the cost of living.
In the past 12 months, average hourly earnings have only increased 81 cents, or 3.1 percent, according to the Labor Department. That’s the biggest increase since 2008, yet it’s not really much to celebrate because it doesn’t take inflation into account. In the past year, prices have been rising, so paychecks have to stretch further. When taking the 2.2 percent inflation rate into account (based on the Consumer Price Index), workers’ wages only grew about 0.9 percent within the past year.
Frustration over stagnant wages is the underlying factor behind widespread worker strikes across the country. Marriott workers in eight cities recently ended the largest hotel strike in US history. Housekeepers, bartenders, and other hotel employees told their unions that low wages made it hard to afford to live in expensive cities like Boston and San Francisco, and told their unions they needed to work multiple jobs to pay their bills. After two months on strike, hotel employees negotiated larger pay raises and other benefits and returned to work earlier this month.
In some states, voters have forced business to give low-paid employees a raise. In the recent midterm elections, voters in Missouri and Arkansas overwhelmingly approved ballot measures that will raise the minimum wage for nearly 1 million workers across both states.
They join nearly two dozen other states that have raised the minimum wage in recent years. That includes Arizona, Colorado, and Maine, which boosted their minimum wage this year to about $10 an hour, and will reach $12 an hour by 2020. Next year, House Democrats plan to push for a $15 minimum wage.
Companies were expected reap an extra $54 billion in total savings from the tax bill during 2018.
If workers do get raises in 2019, it will have little to do with the GOP tax bill.