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The LABOR Paper - Serving Organized Labor Since 1896
Labor Union Members

One time bonus from tax cut benefits business

The group Americans for Tax Fairness reports the tax cut for the Koch Brothers represents $27 million per week.

by Chris M. Stevens of The Labor Paper

UNITED STATES – Fake news. Are there articles in the main stream media which are patently false? Or do many simply mislead? Does ‘purposeful deception’ in the media truly affect outcomes? Let’s step away and examine how ‘fake news’ has dominated the discussion of the ‘Trump tax cut bonuses.’

Background. The new tax law slashes corporate tax rates from 35 to 21 percent. This will place corporate tax revenue to the federal government at its lowest level since WW II. Several analyses by economists have demonstrated that U.S. corporations currently pay an effective tax rate of 20 percent or less. According to Marketwatch.com, for the past five quarters the effective tax rate for Exxon Mobil – 21 percent; Johnson and Johnson – 19 percent; Microsoft – 12 percent; and General Electric – 1 percent.

So are the president and congressional Republicans correct in that the tax cut will benefit average working Americans? According to the Tax Policy Center, “Taxpayers in the middle-income quintile (those with an income between about $49,000 and $86,000) will receive an average tax cut of about $900.” ($17.20 per week) The same report lists how since the corporate tax cuts do not expire they provide a windfall of $29 billion for Warren Buffett’s Berkshire Hathaway. The group Americans for Tax Fairness reports the tax cut for the Koch Brothers represents $27 million per week.

Note. According to the Congressional Budget Office in just two years the loss of federal revenue from the tax cut will explode the deficit to $1.1 trillion. President Obama inherited a federal deficit of $1.4 trillion and left Trump a deficit of only $0.5 trillion after eight years. Remember that debt is passed on to the next generations.

Shortly after the tax cut passed and President Trump had signed the bill, corporations and companies across the country started announcing a one-time bonus of $1,000 for employees. The total announced so far represents $3 billion in bonus payments to 4 million workers.

Before we go any further, according to the New York Times, the bulk of bonuses are awarded to employees with 20 years of seniority, not all employees. The article also stated most employees now spend an average of three years with the same employer. The corporations and companies awarded these employees $250.

The Koch-sponsored Americans for Prosperity has unleashed a $4 million ad campaign touting the money placed in workers’ paychecks and pockets from the bonus. Let’s take a look to determine if the bonuses really did result from the Trump tax cut.

The first important fact: The corporations and companies have all awarded the bonus under the PREVIOUS tax rate of 35 percent, not the new 21 percent. Huh? Corporations obtain a tax deduction for the bonus in the year it pledges to pay the money. This even though the check isn’t sent until the next tax year. Note. A quirk in corporate tax law allows them to set their fiscal year which doesn’t have to correspond to the calendar year.

The business pays a $1,000 bonus which it gets to deduct from its earnings. But wait, they also get to multiply the bonus by the tax rate. So if awarded when the rate sat at 35 percent the bonus is worth a $1,350 deduction. If they ‘decide’ to award the bonus in the 2018 fiscal year, they only get to deduct $1,210 because the rate will be only 21 percent. So, the ‘fake news’ across the media landscape remains the bonus is a result of the tax cut. In reality the bonus is charged to the pre-tax cut fiscal year with the previous tax rate because it offers a larger tax deduction.

Why the media blast to tout the bonus as from the tax cut? Mid-term elections in 2018. The corporations seek to maintain the Republicans majority in Congress and the Senate. In order to do that they must attempt to demonstrate how the tax cut is a win for workers/voters.

The Spellex Corporation went so far as to print “Trump Tax Cut and Jobs Act” in the memo line of the bonus check to employees. Ronald Cameron, owner and chairman of the Mountaire Corporation gave $6 million in bonuses to his 6,000 employees, who on average earn $9.43 – 13.52 per hour. During the 2016 election cycle Cameron gave $14 million to Republicans with $2.4 million to Trump’s campaign.

Examples. Walmart, that will lay off 10,000 employees as it closes several Sam’s Club and underperforming stores, specified the employee bonus to be awarded January 31, 2018, the last day of the company’s 2017 fiscal year. The U-Haul fiscal year ends March 31, 2018. The company has awarded 28,000 employees with $23 million in bonuses. Because the payout will be counted in the 2017 tax year it will cost U-Haul $16 million as $7 million will be written off as a tax deduction.

So what is corporate America doing with the money from the tax cut? Stock buyback to increase the price of stock. An analysis of the S&P 500 by the Wall Street Journal reported “Share buybacks announced by large U.S. companies have exceeded $200 billion in the past three months, more than double the prior year.”

Note. The top 10 percent of earners in the United States own 84 percent of all stock with the top one percent owning 40 percent.

The media. A recent poll by HuffPost/YouGov, discovered Americans were twice as likely to have seen news about bonuses credited to the GOP tax cut, than stories about stock buyback. This public relations campaign makes no secret of the effort to affect the 2018 mid-term elections.

Pay attention. Your vote matters.

 

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