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Photo: Getty Images

Hailed as a lifeline for American businesses, the 2017 Tax Cut and Jobs Act (TCJA) is starting to do more harm than good, new research finds.

Why it matters: After prioritizing debt reduction and business investment in the first half of 2018, companies have dramatically changed course. They are now spending more on share buybacks and dividends than they were paying in taxes before the tax cut, ratings agency Moody's finds.

  • "The TCJA is positive for cash flow but even an optimistic view of that savings pales in comparison to the jump in share buybacks in 2018 and [the savings] can be wiped out entirely by even a modest change in share buybacks," Christina Padgett, senior vice president at Moody's, tells Axios.
  • Note: Data shows companies are on pace to spend more on buybacks in 2019 than they did in 2018, exactly what the ratings agency is warning against.

Details: Moody's studied 100 non-financial U.S. companies with large cash holdings and found that in the second half of the year companies spent about half as much on debt payments as they had in the first quarter and increased buyback spending by more than 60%.

  • "We would prefer to see a reduction of debt or investment in core operating activities that could increase a company’s cash generation in the future," Padgett said.

What to watch: Moody's worries are confirmed in the latest U.S. GDP report, writes MarketWatch's Caroline Baum.

  • "The unexpected strength in the GDP report came from inventories, trade, and state and local government spending, not from business investment."
  • "Private final demand ... which should be the beneficiary of tax cuts and deregulation, rose an anemic 1.3%, the smallest increase in six years."

Why you'll hear about this again: New research also confirms that workers have seen de minimis benefit from the tax cut. Just Capital, a not-for-profit that tracks the Russell 1000 index, finds that workers' share of the tax rebate has been just 6%.

My thought bubble: While companies have long used share buybacks to pump their stock price and deliver for executives and shareholders, the TCJA is underpinning an increasingly distorted market and further increasing the divide between those at the top and everyone else.

Go deeper: Americans have gotten $0.01 more in bonuses since Trump's tax cuts

Go deeper

House passes sweeping election and anti-corruption bill

Photo: Win McNamee via Getty Images

The House voted 220-210Wednesday to pass Democrats' expansive election and anti-corruption bill.

Why it matters: Expanding voting access has been a top priority for Democrats for years, but the House passage of the For the People Act (H.R. 1) comes as states across the country consider legislation to rollback voting access in the aftermath of former President Trump's loss.

Updated 4 hours ago - Politics & Policy

House passes George Floyd Justice in Policing Act

Photo: Stephen Maturen via Getty Images

The House voted 220 to 212 on Wednesday evening to pass a policing bill named for George Floyd, the Black man whose death in Minneapolis last year led to nationwide protests against police brutality and racial injustice.

Why it matters: The legislation overhauls qualified immunity for police officers, bans chokeholds at the federal level, prohibits no-knock warrants in federal drug cases and outlaws racial profiling.

6 hours ago - Politics & Policy

Senate Republicans plan to exact pain before COVID relief vote

Sen. Ron Johnson. Photo: Stefani Reynolds/Bloomberg via Getty Images

Republicans are demanding a full, 600-page bill reading — and painful, multi-hour "vote-a-rama" — as Democrats forge ahead with their plan to pass President Biden's $1.9 trillion COVID-19 relief package.

Why it matters: The procedural war is aimed at forcing Democrats to defend several parts the GOP considers unnecessary and partisan. While the process won't substantially impact the final version of the mammoth bill, it'll provide plenty of ammunition for future campaign messaging.

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