Trump Tax-Cut Bonuses Are A Bust For Middle Class Workers, Wages Lie In A Wasteland Of Failed Promises

Cowen analyst Gautam Khanna summed it up this way: “Poor capital allocation, bad acquisitions, poor share repurchases at higher prices and unsustainably high dividends.”

That certainly sounds like a scenario where stock holders might be buying back their own personal shares while prices were good (making sure prices are good by driving them temporarily higher via buybacks that use the company’s own cash), knowing they’re going to let the company sink into the Wall Street tar pits once they’ve depleted that money and loaded up all the debt they can. Why should these people who are supposed to be stewards of the corporation be allowed to feast on the beast when they are making such bad decisions. (Decisions that are not bad for their personal short-term interest, but bad for everyone else.) Doesn’t sound to me like they were looking for ways to save those 15,000 workers they fired by investing the money in new and creative fields.

Jonathan Macey, a corporate law and finance professor at Yale Law School, defended GE’s buybacks, albeit in a backhanded way. “That’s a poster child of a company that should be returning cash to shareholders — because they obviously don’t know what to do with it,” he said.

That’s another way of looking at it: they’re returning the shareholders money because they don’t know how to make the manufacturer of jet engines fly any longer, so they don’t deserve to keep the shareholder’s money. (Speaking of which, GE did, at least, ground the private plane they used to fly former CEO Immelt all around the world.) Let’s hope someone investigates whether some inside investors got more money back than others.

John Flannery, who became CEO last year, said in January that the company will “maintain a disciplined financial policy” by raising cash and lowering debt. In his annual shareholder letter, Flannery said GE has added new measures to better evaluate the “risk and return” of decisions like dividends and share buybacks.

Here’s an idea for him. Make buybacks illegal again. Force shareholders (especially those on the board) to make money by actually running a company, rather than ruining it for their own benefit.

Corporate America is on track for a record-breaking year for stock buybacks thanks to the cash windfall from President Trump’s tax law.


Christmas bonuses bazaar (and a bit bizarre)

The misleading thing about bonuses is that they are a one off, not nearly as valuable as a raise in wages. Raises are hard to take back later on.

It seems to me that a $1,000 bonus at Christmastime is not that uncommon of a deal. So, some of the reported bonuses, coming as they did in December, could have been coming anyway; but crediting them to the Trump Tax Cuts served a purpose of smoothing over the tax cuts to the rich. I’ve worked blue-collar jobs in the past that included Christmas bonuses ranging between $500 and $1,000. So, the amount is even in keeping with company Christmas bonuses in a decent year.

Many of the bonuses were payoffs for layoffs. They were PR to create some positive spin at a time when the same companies promising bonuses announced layoffs the very next day. In such cases, the bonus is nothing more of a minuscule severance package. Obviously, a little public goodwill from announcing charitable bonuses from the tax cuts can help soften the reputational dent from the layoffs at Christmastime or to start of the new year.

One of those companies that were quick to boast about bonuses to the rank and file (AT&T) announced the very next day it was firing many of the people who would be receiving the $1,000 bonuses. Clearly, they wanted to get a little positive PR out there ahead of the pink-slip news.

AT&T chose to downsize at Christmastime — the time of year when a layoff carries the most sting. Their heartless timing could have been because of a merger they were working on that the Trump administration was opposed to. The Donald loves praise and PR, so an act that made the Trump Tax Cuts look immediately successful couldn’t hurt AT&T’s cause. Not saying that was the reason for a fact, but “here’s your bonus, and here’s your pink slip” is an odd kind of bonus to get all boasty about.

I would consider AT&T’s $1,000, not even a Christmas bonus, much less a sharing of anticipated tax savings. It was simply a bite-size severance package made with perhaps a little wistful hope that it would create better feelings in the Trump Admin. toward AT&T’s merger hopes.

Of course, job-destroying mergers are the other type of business activity that I said in an earlier article would actually prove to be a much bigger effect from the Trump tax cuts than wage increases. Given large piles of tax savings, companies that slaver over the chance to look bigger would much prefer to use the money to conglomerate and cut jobs through hoped-for efficiency gains than use it to create new products in search of new customers.

In a similar style to AT&T, Lowe’s announced $1,000 bonuses at the start of the year, and then surprised employees with unannounced store closures and layoffs: 

There is certainly no concern for humanity in such surprise layoffs, but it also does not appear that tax savings are being used to reposition human resources for expansion elsewhere.

A spokesperson for Lowe’s explained in an email, “We believe employees impacted by decisions personally affecting them and their families should learn news directly from the company. To help support employees, company leadership at all levels, including the CEO, communicated directly with employees.

Uh, apparently those in the video didn’t get the memo.

Lowe’s CEO, Robert Niblock (a.ka. Nip Block, Knob Lick, or Nipple Lock), said he would be flying economy class from now on and cutting executive benefits in order to spend more money hiring customer service staff on the floor. Why didn’t he just keep on those guys in the video by using some of those tax savings to move those he fired to whatever stores are going to get the additional staffing. Even in thriving housing markets like Seattle in one of Seattle’s wealthiest suburbs, Lowe’s has laid off hundreds of employees.

Last year Lowe’s laid off 2,400 assistant store managers. This could all be smart restructuring, as Lowe’s claims, or it could be acts of desperation. Regardless, it does not appear the tax cuts are creating jobs at Lowe’s as more employees seem to be leaving out the back door than coming in new at the front.

Walmart, too, announced pay raises for its employees, and then the very same dayannounced the closure of 63 Sam’s Club stores. It has also announced thousands of layoffs for 2018.

I’m not saying unprofitable stores should remain open just so people can keep their jobs; but I am saying the timing of some of these bonus announcements, which Walmart’s CEO also tagged to the tax cuts, looks like they have a lot more to do with creating some positive news in the same cycle when the thousands of terminations are announced.

Wage increases were coming regardless of the Trump Tax Cuts

When you look at Walmart’s statement that, as a result of the tax cuts, it is raising wages for bottom-tier employees to $11 per hour, you have to recognize that much of that was already being mandated by the labor market as well as by governmental changes to minimum wage laws at the municipal level that makes $11 an illegal low wage in many urban areas.

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