By Toluse Olorunnipa
Bloomberg
November 29, 2017
Major companies including Cisco Systems Inc., Pfizer Inc. and Coca-Cola Co. say they’ll turn over most gains from proposed corporate tax cuts to their shareholders, undercutting President Donald Trump’s promise that his plan will create jobs and boost wages for the middle class. The president has held fast to his pledge even as top executives’ comments have run counter to it for months. Instead of hiring more workers or raising their pay, many companies say they’ll first increase dividends or buy back their own shares. The White House released a paper last month predicting that cutting the corporate tax rate to 20 percent would would increase average household income by $4,000 to $9,000. Other economists have questioned that claim. But CEOs more often tout the benefits of the legislation for shareholders. Corporations are most likely to pay down debt and repurchase shares with the proceeds from a “tax holiday,” according to Shin’s Bank of America Merrill Lynch Global Research survey of companies, conducted in July. Only 35 percent of companies said they would use the money for capital expenditures.
Share buybacks are a way for companies to reward investors using spare cash. They tend to have the effect of raising share prices and appearing to increase a firm’s earnings per share by reducing the number of shares in circulation. But there is also outright opposition by some corporate leaders, who cite concerns including increased economic inequality and the bill’s impact on the national debt. Starbucks Corp. Chairman Howard Schultz, Berkshire Hathaway Inc. Chairman and CEO Warren Buffett and BlackRock Financial Management Inc. Chairman and CEO Larry Fink have all publicly criticized the legislation. Goldman Sachs Group Inc. Chairman and CEO Lloyd Blankfein said this month that with the economy at nearly full employment and growing at 3 percent, now isn’t the best time for tax cuts. And John Bogle, founder of Vanguard Group, said Tuesday that the Republican tax plan is a “moral abomination” in part because companies will hand over the proceeds to shareholders. “One of the flaws is that corporations are putting their shareholders ahead of the people that built the corporation,” he said at an event in New York sponsored by the Council on Foreign Relations.
