Feb 27, 2018 - Economy

Companies spending Trump tax cuts on themselves

Man walks by the New York Stock Exchange.

Man walks by the New York Stock Exchange. Photo: Spencer Platt / Getty Images

Trump has touted that the recent tax code overhaul would prompt companies to use extra funds to hike up their employees’ paychecks. While some companies have announced plans like this, others are using much of the extra cash to invest in their own companies by buying back shares, NYT’s Matt Phillips reports.

Why it matters: That’s an investment back into the companies which will likely enhance their stock prices, but it is “most likely to worsen economic inequality because the benefits of stocks purchases flow disproportionately to the richest Americans,” Phillips writes. The bottom line is what companies do with their extra wiggle room will determine how successful the tax code overhaul is for Republicans.

  • The White House knows buybacks are more popular than wage investments now. “Right now we’re going to have an adjustment where you see probably more dividends and share buybacks than wage increases,” the head of White House’s Council of Economic Advisers, Keven Hassett said last week.

But, but, but:

  • Buybacks are a boon for the stock market. The fact that buybacks were coming down the pipeline helped the stock market recover from some its losses earlier this month, Phillips says.
  • The causality for the buybacks isn’t necessarily about the tax code overhaul. Some economists believe the recent uptick in buybacks is due to a decline in capital investments.
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