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Di Leo: 2018 Begins with a Cornucopia Created by Tax Reform

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By John F. Di Leo - 

We've all heard the stories about how several big companies decided to give bonuses immediately after the December 2017 tax reform was passed… but the mainstream media quickly dropped the story.

What we haven't heard about over the past week or so is how the list of companies has grown. (compliments to the good folks at Americans for Tax Reform for committing to build a running list online).

Some are relatively small businesses, like banks that have a couple hundred employees… but it's remarkable how many big companies have jumped on the bonus bandwagon too. For example: 

  • AT&T: $1000 each to about 200,000 employees.
  • American Airlines: $1000 each to about 130,000 employees.
  • Bank of America: $1000 each to about 145,000 employees.

The list is up to about a hundred so far, and that's just of the known, publicized companies joining this bandwagon. Obviously, lots of companies wouldn't issue press releases about it, for various reasons, so we can assume the real impact is broadly distributed nationwide, below the PR surface.

 

Another interesting aspect of the story is some of the other ways that companies have chosen to implement their response. It's not all about $1000 one-time bonuses for employees: For example:

 

  • Associated Bank raised their starting wage from $10/hour to $15/hour.
  • AFLAC raised their corporate 401K match from their usual 50% to 100% on the first 4% of compensation.
  • Wells Fargo announced $400 million in charitable donations.
  • Boeing announced increased domestic infrastructure and facilities investment of $100 million.

 

As we review the list (which ATR is publishing with revealing, parenthetical quotes from the companies’ announcements), we see that a number of important conservative predictions have rung true:

 

Over the years, conservative pundits and politicians who advocate for tax cuts are most commonly assailed by Leftists who insist “but the fat cats will just keep it to themselves!”

 

We always respond that, yes, some probably will… which still helps the economy, because the rich guy still has to do something with his money, whether to invest it, or buy stuff, or put it in the bank, or spend it on vacation and parties, all of which helps the economy, all of which creates jobs.

 

But most will not. Most companies receiving a tax rate reduction will put it into their businesses and communities in some way, either by increasing salaries and bonuses, by funding local charities, by expanding their facilities, by increasing their staff, or by broadening R&D or product offerings.

 

The Left will demand that they promise which of these things they’ll do – or even mandate that it be done in certain ways, or they don’t get the tax cut! They simply cannot, will not, accept the fact that if we offer the private sector the freedom to operate, they will do the right thing, according to their situations.

 

Some companies already have a good pay range; for them a one-time bonus might make more sense. Another company might have an uncompetitive base salary range; for them the across-the-board increase in starting pay is more logical.   Some companies already have competitive pay ranges for their area, so helping the community by sponsoring kids’ sporting leagues or funding a center for the disabled might be the best thing they can do.

 

The key is this: the companies will find a wide array of ways to put their money to use, now that the federal government is taking less from them. And all these ways – in salary, in R&D, in expansion, in charity, and so many more – are good for the community, and good for the country.

 

We don’t need to micromanage the business community; they’ve been micromanaged way too long already, to tragically deleterious effect.   We need to let the private sector decide for themselves what to do with their own money; whatever method they choose, it will always be better than sending it to Washington, where the politicians will just light a match to it by the pallet-load.

 

It is a joy to be able to say to the Left that “We Told You So…” but more importantly, it is good to have this real-world set of examples – growing by the day – that show the immediate results of conservative tax policies.

 

The longer term results are even more important, but harder to capture in numbers. Consider the future for those receiving these benefits:

 

Bonuses:

  • Some of the recipients will use the bonuses to take their families out to dinner more. This benefits not only the families enjoying those meals, but also the restaurants and the individual servers who benefit from additional customers and tips.
  • Some will use the bonuses to catch up on bills. A thousand dollars in credit card debt, paid down, might really be a savings of $2000 for him, if it would otherwise have taken him a few years to pay it off.
  • Some will use the bonuses to visit family, perhaps a rare trip to visit a far-off parent, uncle or aunt whom they couldn’t otherwise afford to visit. A grand might cover a round way airfare for one, or the gas, hotel and meals for a family drive.

 

401K Matching:

  • The companies who use the money to increase their 401K contribution matches have probably created the biggest long term help to their employees, as that $500 or $1000 contribution today might double, quadruple, or even multiply tenfold, depending on the time between today and each employee’s retirement. Another grand in your account at 50 is great… but how about another grand in your retirement account when you’re 40? Or 30? Or even 22?  There are young people just starting out, with a low salary, for whom their three or four percent 401K withholding plan moves at a snail’s pace: this one-time injection into that account might light the fire of “the savings mentality” for a lot of young families, and change their trajectory toward a much healthier eventual retirement.

 

Charities:

  • With real wages largely flat for the past 20 years, especially for the lower-to-middle middle class, certain types of charitable giving have really suffered. Many charities have become more and more dependent on the donations of big national companies and generous local companies. The infusion of billions of new dollars in one sudden burst could literally save a lot of places on the verge of shutting down, and will make a real difference in the quality of care that hundreds of facilities provide to their charges, from children to seniors, from the poor to the disabled.

 

Capital Investment:

  • The announcements of infrastructure commitments have been especially welcome. As Comcast, Boeing, Regions Financial, and so many more are promising to spend hundreds of millions more in facilities expansions, this is not only a longtime commitment to their existing employees, it’s an investment in their communities. What we see today is the company that commits to expansion, but what we won’t see – in the newspapers – is how that money will be spent in the years to come, as this expansion takes shape. They’ll be hiring architects, builders, construction crews… buying desks and chairs and computers… hiring landscapers and janitorial services… installing new equipment and hiring new employees to operate it, buying more materials to transform and sell. Think of all these others who will be employed, by other companies who don’t make the news, because of these public commitments.

 

Base Salaries:

  • Before we leave this review – which only touches on a few points of a wide-ranging, almost unlimited panorama of positive economic effects – let’s consider the companies that are raising their entry level salaries.   The left has spent years and years – and countless money and effort and political capital – in trying to force companies to increase their pay through a mandated minimum wage. When the companies cannot afford to pay $15/hour, they just fire employees, or move away, or shut down entirely. But when we reduce their tax burden, we see that companies will increase their pay scales willingly, without coercion. This issue alone shows the lie of modern liberalism: the Left tells us that people will only do good if they are forced to; the Right proves that people will do good if we just allow them the freedom to do so.

 

We have only scratched the surface here.   The story on the 2017 tax reform is yet to be told, since its effects are only beginning to be felt.  

 

But there can be no doubt: as Steve Allen said in the song that made Steve and Eydie’s career, back in the days of John F. Kennedy’s successful tax cut, “This could be the start of something big!”

 

Copyright 2017 John F. Di Leo

 

John F. Di Leo is a Chicagoland-based Customs broker, writer, and actor. His columns are regularly found in Illinois Review.

 

Permission is hereby granted to forward freely, provided it is uncut and the IR URL and byline are included.

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