Major companies include Cisco Systems Inc., Pfizer Inc. and Coca-Cola Co. say they will hand over most of the proposed corporate tax cuts to their shareholders, undermining President Donald Trump promises that his plan will create jobs and raise salaries for the middle clbad.
The president has remained firm in his promise even when the comments of senior executives have been countered for months. Instead of hiring more workers or increasing their salary, many companies say they will first increase dividends or buy their own shares.
Robert Bradway, chief executive of Amgen Inc., said in an earnings call on October 25 that the company has been "actively returning capital in the form of increasing dividends and buybacks and I hope we continue that way." Executives such as Coca-Cola CEO James Quincey, Pfizer CFO Frank D & # 39; Amelio, and Cisco CFO Kelly Kramer recently made similar statements.
"We can become much more aggressive in repurchasing shares" after a tax cut, Kramer said in an interview on November 16.
voters disapprove of Republican tax legislation by a two-to-one margin, according to a survey by Quinnipiac University published on November 15, and corporate pledges to return any windfall to investors do not help the effort of sales of the White House. The Trump administration seemed puzzled. In a speech delivered on November 14 at the Wall Street Journal CEO's Council by Trump's top economic adviser, Gary Cohn, the moderator asked the business leaders of the audience for a show of hands if they planned to reinvest tax revenues. Few people responded.
"Why are not the other hands up?" Asked Cohn.
Working for shareholders
Trump has insisted that the Republican tax plan reduced the US corporate rate. UU At 20 percent of 35 percent. Another provision would impose an even lower tax rate on companies' profits stored abroad, giving them an incentive to return trillions of dollars in cash to the United States. It is unlikely that the money will stimulate hiring because the companies are already well capitalized and can generate as many employees as they need, said John Shin, a currency strategist at Bank of America Merrill Lynch.
"Companies have large amounts of cash, but they are not financially limited," Shin said in an interview. Shin, who conducted a survey of more than 300 companies to ask about their plans for a tax review. "They continue to work for their shareholders, mainly."
Your guide to follow the debate on tax reduction in the US US: QuickTake Q & A
White House officials say that coordinating with business leaders has been effective, highlighting comments from executives at companies such as Broadcom Ltd. and AT & T Inc. who have explicitly linked tax reductions to employment growth.
"The administration has been working with business leaders and job creators from the beginning of the tax reform process," White House spokeswoman Lindsay Walters said in a statement. "We are encouraged by the strong support we continue to receive. as we create a tax system for pro-growth, pro-worker and pro-American companies that will lead to more jobs, higher wages and a renewed competitive advantage for US companies. "
But in her testimony before the bi-cameral Joint Economic Committee on Wednesday, Federal Reserve Chair Janet Yellen said the pl "I do not think stock repurchases will increase wages," Yellen said when the Democratic senator from Michigan, Gary Peters, asked about the impact of the plans of the executive directors. Investment in capital and equipment, not repurchases, would increase productivity and pay, he said.
& # 39; Tell This Story & # 39;
The Trump administration has made clear its desire that companies publicly adopt tax legislation. Speaking to the Wall Street Journal CEO Council a few hours after Cohn's appearance, Vice President Mike Pence called on executives to defend the bill, and "particularly" to help argue that corporate tax cuts would lead to more pay. high
We need you all to tell this story, "said Pence.
One of the main advocates of Trump's tax plan, Jamie Dimon, CEO of JPMorgan Chase & Co., lamented that corporate taxes have not been cut by former president Barack Obama says companies would return money to shareholders and invest in their businesses.
"If we had the right system seven years ago, trillions of dollars would have been kept. Some would have paid dividends and buy back shares, but so be it, that's your money, "Dimon said last week at the Chicago Economic Club." But companies would have made large investments, and we know one thing for sure: investment drives productivity, boosts employment and wages. "
$ 9,000 increase
The White House published a document last month that predicted that corporate tax would be reduced by a rate of 20 percent would increase the average family income in $ 4,000 to $ 9,000 Other economists have questioned that claim.
But CEOs often trumpet the benefits of shareholder legislation, companies are more likely to pay their debts and buy back shares with the proceeds of a "holiday" "According to the Merrill Lynch Global Research company survey conducted by Shin & # 39; s Bank of America, conducted in July, only 35 percent of companies said that and they would use the money for capital expenditures.
An administration official said that dividends and repurchases of shares resulting from a lower tax rate would also benefit the economy and strengthen pensions for middle-clbad workers. The official, who requested anonymity to discuss internal deliberations, said more corporate leaders could offer public support for the bill once the legislation is finalized.
Stock repurchases are a way to reward investors with cash. They tend to have the effect of raising stock prices and seem to increase a company's earnings per share by reducing the number of shares outstanding.
Certainly, some business leaders have explicitly said that corporate tax cuts would make them invest in jobs and wages. AT & T pledged to increase US investment by $ 1 billion by 2018 if the tax was approved.
"This project will stimulate investment, job creation and economic growth in the United States," said company president and CEO Randall Stephenson. Declaration of November 8.
Trump welcomed Broadcom Ltd. CEO Hock Tan to the Oval Office on November 2 to announce that the semiconductor company would relocate its headquarters to the US. UU From Singapore. Both men attributed the pending tax review for the decision, even though the company already had extended operations on US soil, and badysts interpreted the move as a politically motivated offer to ensure approval of acquisitions.
& # 39; Moral Abomination & # 39;
But there is also a resounding opposition from some corporate leaders, who cite concerns such as increased economic inequality and the impact of the bill on the national debt.
Howard Schultz, president of Starbucks Corp., president and CEO of Berkshire Hathaway Inc. Warren Buffett and The president and CEO of BlackRock Financial Management Inc., Larry Fink, has publicly criticized the legislation. The president and CEO of Goldman Sachs Group Inc., Lloyd Blankfein, said this month that with the economy in near full employment and growing at 3 percent, now is not the best time for tax cuts.
And John Bogle, founder of Vanguard Group, said on Tuesday that the Republican tax plan is a "moral abomination" in part because companies will hand over profits to shareholders.
"One of the shortcomings is that companies are putting their shareholders ahead of the people who built the corporation," he said at an event in New York sponsored by the Council on Foreign Relations.
– With the help of Hugh Son, Ian King and Cynthia Koons