We’ve known for a while that next to none of the spoils from the 2017 Trump tax bill’s infamous corporate tax cut trickled down to workers. But now, thanks to recent reporting from some of our allies, we’re more certain than ever that the cut’s benefits instead gushed up to wealthy shareholders like many of us.
One of the major provisions of the 2017 Tax Cuts and Jobs Act (TCJA) was its permanent reduction of the corporate income tax rate from 35% to 21%. At the time of the bill’s passage, Republicans tried to sell this tax slash to the public by claiming that it would boost workers’ wages and grow the economy, but this has not panned out in the seven years that the law has been in effect.
We already knew that Republicans were wrong on the TCJA’s wage benefits. If you remember, back in April, we told you about a study from the Joint Committee on Taxation and the Federal Reserve Board which found that workers below the 90th percentile in their firm’s earning distribution – i.e. those that made less than $114,000 in 2016 – experienced no wage gains whatsoever from the TCJA’s big corporate tax cut. Now, however, thanks to a new study from researchers at the Brookings Institution, University of North Carolina, and the American Enterprise Institute, we know that the TCJA also does not appear to have had much of an effect on investment growth. This isn’t altogether surprising considering that previous research found that, in 2018, large firms spent less than 20% of their savings from the TCJA’s corporate tax cut on capital investments and research and development initiatives.
So if companies aren’t spending their windfall from the TCJA corporate tax cut on workers’ wages or long-term investments, how are they spending it? Simple: enriching their shareholders with stock buybacks and dividend payments.
Stock buybacks occur when companies repurchase, or “buy back,” their own stock from shareholders in order to inflate their stocks’ share prices. The practice was actually illegal for most of the 20th century, as it was generally viewed as companies impermissibly manipulating the market in their favor. The ban was lifted in 1982 under President Ronald Reagan.
Corporations were already spending billions on stock buybacks before 2018, but the TCJA blasted their spending off into the stratosphere. In 2017, the year before the TCJA went into effect, S&P 500 companies spent $540 billion on share repurchases. In 2023, they spent $815 billion. And in 2025, they are projected to spend over $1 trillion for the first time. A new study from our friends at Americans for Tax Fairness also found that, between 2018 and 2022, 280 of America’s largest corporations spent a combined $2.7 trillion on stock buybacks; by the end of 2022, these companies were spending 98% more on buybacks than they were in 2017.
Meanwhile, dividends are scheduled payments by corporations to their shareholders. Dividends have been around for a lot longer than buybacks – believe it or not, their earliest form dates back to joint stock companies from the 17th century European Age of Discovery! Today, corporations take pride in issuing regular and increasingly higher dividend payments to their shareholders, as they are viewed in the business community as an indicator of general company health. But after the TCJA, you could argue that corporations have taken a little too much pride in their dividends. The aforementioned Americans for Tax Fairness study found that, between 2018 and 2022, 280 of America’s largest corporations spent a combined $1.7 trillion on dividends; by the end of 2022, these companies were spending 40% more on dividends than they were in 2017. While far less than what they spent on stock buybacks, it’s still an outrageous far cry from the $608 billion they paid in corporate taxes over those five years.
Some business moguls and pundits like to defend stock buybacks and dividends because they benefit all shareholders, and not just companies’ top brass. While this is technically true, what they fail to recognize is that wealthy Americans own most stock in the US: the richest 10% of Americans hold no less than 93% of all publicly traded stock, while the bottom 50% of households own just 1%. So when a company like Apple spends $458.5 billion on buybacks and dividends over five years, it’s wrong to suggest that average Joes are getting even a crumb of it.
The other part of the puzzle that buyback and dividend apologists fail to see is that these practices do nothing tangible to help stakeholders like workers, communities, or customers. Trillions spent on buybacks and dividends for wealthy shareholders is, by definition, money that is not spent on things like increased worker pay, enhanced safety measures, and research and development initiatives. Companies may benefit in the short term with big stock buybacks and dividends by making their shareholders happy, but they hurt themselves in the long run as they neglect to properly invest in their futures. This is supported by research from Professor William Lazonick, one of the country’s leading scholars on stock buybacks, who has found that share repurchases are associated with lower innovation, lower productivity growth, and more layoffs.
In short, the numbers don’t lie: stock buybacks and dividends are a win for wealthy shareholders and a loss for, well, basically everyone else. But leaving buybacks and dividends aside, if you still think that corporate tax cuts are a good idea, you need only look at the Institute on Taxation and Economic Policy’s new study to see through the fog. They found that, in the first year that a corporate tax break goes into effect, the biggest winners aren’t even Americans: they’re foreign investors, who reap 40% of the benefits. Of the 60% of benefits that go to Americans, 35% flow to the top 5% of households – with 17% going to just the top 1% alone – which leaves table scraps for the rest of the country.
Unfortunately, the 40% reduction in the corporate tax rate is not one of the provisions of the TCJA that is scheduled to expire at the end of 2025. But that doesn’t mean that Congress should throw their hands up in the air and declare defeat. They should use the unique political opportunity that 2025 affords to fundamentally rewrite the whole tax code to ensure that corporations and their wealthy shareholders pay their fair share in taxes. If we really want to use our tax code to grow the economy, lift up working people, and rein in runaway inequality, all of the research indicates that corporate tax cuts simply aren’t the way to go.
President Biden has hit the right note in his plans to make corporations pay what they owe in taxes. Among other things, he has proposed increasing the corporate tax rate from 21% to 28% and increasing the 1% tax on stock buybacks enacted as part of the 2022 Inflation Reduction Act to 4%. Former President Trump, on the other hand, seems to have missed the memo entirely on how regressive corporate tax breaks are, as he wants to further lower the corporate income tax rate. Or who knows – judging by some of his eye-popping remarks with donors, he has, in fact, seen the memo and likes what he’s read.
Corporations have used just about every trick in the book to rip off working Americans and enrich their wealthy shareholders and executives. The least that they can do to make up for it is pay their rightful share in taxes.
