The Looting Has Already Begun

One of the many enormous lies that Republicans tell about this horrific tax bill is that companies will pass on some of the enormous savings to their workers in the form of higher wages. But judging by the CEOs’ show of hands when Gary Cohn wanted to know how many of them would immediately expand their business with their windfall, the bill is unlikely to spur much investment or competition for labor that would put upward pressure on wages.

Tim Sloan, the CEO of the scandal-plagued bank Wells Fargo, was surprisingly candid (especially considering the lies the bank has peddled about the massive criminality it has engaged in over the last 15 years) when asked what he would do the bank’s enormous windfall from this bill. Said Sloan, “Is it our goal to increase return to our shareholders and do we have an excess amount of capital? The answer to both is, yes. So our expectation should be that we will continue to increase our dividend and our share buybacks next year and the year after that and the year after that.” It should be noted that Wells Fargo is estimated to be one of the biggest winners from this GOP gift, with a nearly 18% increase in annual earnings. Wells’ 2016 net income was nearly $22 billion and Sloan’s compensation for the few months of the year that he was CEO was nearly $13 million. Does that look like a company that is struggling financially to survive and really needs a tax cut?

Sloan has admitted what virtually all CEOs will do with the tax windfall they receive and that is to distribute it back to shareholders in the form of higher stock prices from share buybacks or increased dividends. There is absolutely no intention of passing any of this money on to workers. And you can see this process happening already. Kevin Drum highlights the average daily volume of stock buybacks over the last two years:

As you can see, once it became apparent that the GOP tax bill was actually going to pass, there was at least a five-fold increase in the volume stock buybacks. And buybacks and dividends are where virtually all of the benefits of this massive corporate tax cut will go.

Let’s be clear, there are no economic benefits to a stock buyback. All it does is reduce the number of shares outstanding and juice the price of the stock. In the ten years from 2005 to 2015, Walmart, one of the most successful companies of that decade, actually spent an incredible 47% of its profits on stock buybacks. If that money had actually been spent on its 1.4 million workers, it would have come to a yearly raise of over $4,500 for every single one of them. Moreover, the availability of stock buybacks as a tool for supporting a stock price simply adds to the pressures of short term, quarterly thinking that CEOs are currently driven by and thereby reduces the long-term stability and competitiveness of our economy as a whole. In addition, the obsession with buybacks has contributed enormously to the financialization of our economy, something that mainly just benefits the big banks like Wells Fargo and helped contribute to the Great Recession.

In fact, stock buybacks were always considered an illegal market manipulation and banned from use until that rule was reversed in 1982 under Reagan (of course).  Reinstating this rule should be one of the pillars of the new Democratic economic platform as well as returning to the pre-Reagan views on antitrust issues where mergers were viewed holistically for their impact on employment, wages, and regional concerns as opposed to the current single-minded focus on benefits to customers. Combine those two proposals with a reduction or even elimination of the preference for passive income over wage income and Democrats have a strong base for renewing our American economy.