INDIANAPOLIS – Large corporations are using their windfall from the McConnell tax plan to disproportionately reward their wealthy shareholders and senior executives instead of their employees. A New York Times article last week notes that many corporations are using their new profits on share buybacks – likely to only benefit the richest 10% of Americans, who own 84% of all stocks – not investments that help the overall economy, such as hiring or building new plants. Unlike what Republicans like Congressmen Rokita and Messer claimed, it seems the reality is that many corporations are just using the McConnell tax plan as an opportunity to reward their wealthy investors.
From the New York Times: Trump’s Tax Cuts in Hand, Companies Spend More on Themselves Than on Wages
President Trump promised that his tax cut would encourage companies to invest in factories, workers and wages, setting off a spending spree that would reinvigorate the American economy.
Companies have announced plans for some of those investments. But so far, companies are using much of the money for something with a more narrow benefit: buying their own shares.
Those so-called buybacks are good for shareholders, including the senior executives who tend to be big owners of their companies’ stock. A company purchasing its own shares is a time-tested way to bolster its stock price.
But the purchases can come at the expense of investments in things like hiring, research and development and building new plants — the sort of investments that directly help the overall economy. The buybacks are also most likely to worsen economic inequality because the benefits of stocks purchases flow disproportionately to the richest Americans.
But the buying back of shares is also at record levels.
Almost 100 American corporations have trumpeted such plans in the past month. American companies have announced more than $178 billion in planned buybacks — the largest amount unveiled in a single quarter, according to Birinyi Associates, a market research firm.
The broader impact on the economy is less clear. Economists believe a rising stock market benefits the economy, helping support consumer and business confidence. But the vast majority of the billions of dollars in planned share purchases will benefit the richest 10 percent of American households, who own 84 percent of all stocks. The top 1 percent of households own about 40 percent of all stocks.