This 2007 photo shows an Airbus A320 JetBlue aircraft in Burbank, California. JetBlue is handing out $1,000 bonuses to its employees. (AP Photo/Damian Dovarganes, File)

This 2007 photo shows an Airbus A320 JetBlue aircraft in Burbank, California. JetBlue is handing out $1,000 bonuses to its employees. (AP Photo/Damian Dovarganes, File)

Less than meets eye: Bonuses, not raises, from U.S. tax cuts

In some cases, the companies are sharing only a sliver of their tax-cut windfalls.

  • By CHRISTOPHER RUGABER and JOSH BOAK AP Economics Writers
  • Thursday, January 11, 2018 1:30am
  • Business

By Christopher Rugaber and Josh Boak / Associated Press

WASHINGTON — American Airlines is handing out $1,000 bonuses to its employees. So are AT&T, Bank of America and Nationwide Insurance. The same for Comcast, JetBlue Airways and US Bancorp.

Such announcements , coming from dozens of companies, have followed the passage of the Republican tax plan that President Donald Trump signed into law last month. The plan slashed the corporate tax rate from 35 percent to 21 percent. The companies say the bonuses they’ve announced are a way to share some of their bounty with their workers.

Yet the bonuses are one-time payouts, not the permanent pay raises that Trump and congressional Republicans have said will eventually result from the corporate tax cuts. Over time, bonuses are far less valuable to employees than wage increases.

So far, most companies haven’t said whether permanent pay increases are in the works. And economists caution that the corporate income tax cut’s effect on average pay, if any, might not become apparent for several years.

“As a worker, it’s great to get a one-off bonus, but that doesn’t guarantee anything for the next year,” said Stephen Stanley, chief economist at Amherst Pierpont. “You’d rather have the raise, because next year you’re working off the higher base.”

Eventually, Stanley thinks the lower corporate tax rates will lead to worker pay raises. He expects companies over the next several years to use some of their windfalls to invest in equipment that would make workers more productive and lead to higher wages.

Other economists remain skeptical. They note that the lion’s share of the corporate tax cut will overwhelmingly benefit shareholders and company owners. That sentiment is one reason stock market indexes are setting new highs almost daily.

“The bulk of the corporate tax cuts should accrue to people who hold stock in companies,” said Ethan Harris, chief economist at Bank of America Merrill Lynch. “Workers benefit much more from a cut in taxes on ordinary income. In other words, better to get a direct cut than a spillover from cuts to others.”

Beyond the worker bonuses that have been announced, typically for $1,000, about a dozen banks have said they will raise their minimum wages. A handful of mostly small companies, including Washington Federal Bank, have announced pay increases for most of their workforces. And a few, including Visa and Aflac , have said they will raise their contributions to their employees’ retirement plans.

In addition, U.S. workers will begin receiving more take-home pay, likely by next month, as lower tax rates for individuals under the Republican plan kick in.

The Communications Workers of America, a labor union, asked CEOs of large corporations to give workers the $4,000 average income gain that White House officials said would flow eventually from lower corporate taxes. AT&T, the first company to announce bonuses, said it chose the $1,000 bonus instead.

American Airlines, which also employs the communication union’s members, similarly decided to bestow a $1,000 bonus. The union said it appreciated the gesture but asserted in a statement that the bonus “falls short of the permanent wage increase that working families were promised.”

The White House has touted the announced bonuses as evidence that the corporate tax cut is benefiting workers, rather than just shareholders, and has dubbed the payouts a “Trump bonus.”

“Businesses across America have already started to raise wages, and more than 100 companies have already given bonuses and other benefits to hundreds of thousands of workers as a result of these massive tax cuts,” Trump said Monday in Nashville.

The conservative group Americans for Tax Reform, which backed the tax cut, has compiled a list of more than 100 companies that have announced some kind of financial benefit for employees resulting from the tax cut.

Only a few have announced any broad-based pay increases. One that has is Nephron Pharmaceuticals , based in West Columbia, South Carolina. Nephron said it would give a 5 percent raise to most of its 640 employees.

Andrew Chamberlain, chief economist at Glassdoor, said there are practical reasons why most companies would prefer bonuses over pay raises.

“It’s a way for employers to benefit workers without being on the hook for a long-term pay increases,” Chamberlain said.

In some cases, the companies are sharing only a sliver of their tax-cut windfalls. Bank of America’s bonuses will cost it roughly $145 million — only about 4 percent of the $3.5 billion that Goldman Sachs estimates Bank of America will receive from the tax cut.

Likewise, KBW, an investment firm, estimates that Wells Fargo’s commitments to raise its minimum wage to $15 an hour and to boost its charitable contributions will equal about 5 percent of the additional profits the tax cut will provide Wells.

Most economists do expect paychecks to start rising faster for most workers this year but for a different reason: The unemployment rate is projected to fall further and could reach a five-decade low of 3.5 percent. A rate that low would likely force many companies to sharply raise pay to keep and attract the workers they need.

Economists like Stanley, who expects the corporate tax cut to lift wages over time, think it will happen indirectly as companies channel their tax savings into machinery, computers and software, making workers productive and leading to higher pay.

“These things aren’t going to happen right away, but they will gradually follow through in the next several years,” Stanley said.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Reed Macdonald, magniX CEO. Photo: magniX
Everett-based magniX appoints longtime aerospace exec as new CEO

Reed Macdonald will take the helm at a pivotal time for the company that builds electric motors for airplanes.

People walk along a newly constructed bridge at the Big Four Ice Caves hike along the Mountain Loop Highway in Snohomish County, Washington on Wednesday, July 19, 2023. (Annie Barker / The Herald)
Check out the best tourist attractions in Snohomish County

Here’s a taste of what to do and see in Snohomish County, from shopping to sky diving.

People walk out of the Columbia Clearance Store at Seattle Premium Outlets on Thursday, April 25, 2024 in Quil Ceda Village, Washington. (Olivia Vanni / The Herald)
Head to Tulalip for retail recreation at Seattle Premium Outlets

The outlet mall has over 130 shops. You might even bring home a furry friend.

Brandon Baker, deputy director for the Port of Edmonds, shows off the port's new logo. Credit: Port of Edmonds
A new logo sets sail for the Port of Edmonds

Port officials say after 30 years it was time for a new look

Penny Clark, owner of Travel Time of Everett Inc., at her home office on Tuesday, April 23, 2024 in Arlington, Washington. (Olivia Vanni / The Herald)
In a changing industry, travel agents ‘so busy’ navigating modern travel

While online travel tools are everywhere, travel advisers still prove useful — and popular, says Penny Clark, of Travel Time in Arlington.

Travis Furlanic shows the fluorescent properties of sulfur tuft mushrooms during a Whidbey Wild Mushroom Tour at Tilth Farmers Market on Saturday, April 27, 2024 in Langley, Washington. (Annie Barker / The Herald)
On Whidbey Island, local fungi forager offers educational mushroom tours

Every spring and fall, Travis Furlanic guides groups through county parks. His priority, he said, is education.

ZeroAvia founder and CEO Val Mifthakof, left, shows Gov. Jay Inslee a hydrogen-powered motor during an event at ZeroAvia’s new Everett facility on Wednesday, April 24, 2024, near Paine Field in Everett, Washington. (Ryan Berry / The Herald)
ZeroAvia’s new Everett center ‘a huge step in decarbonizing’ aviation

The British-American company, which is developing hydrogen-electric powered aircraft, expects one day to employ hundreds at the site.

Allan and Frances Peterson, a woodworker and artist respectively, stand in the door of the old horse stable they turned into Milkwood on Sunday, March 31, 2024, in Index, Washington. (Ryan Berry / The Herald)
Old horse stall in Index is mini art gallery in the boonies

Frances and Allan Peterson showcase their art. And where else you can buy a souvenir Index pillow or dish towel?

Everett
Red Robin to pay $600K for harassment at Everett location

A consent decree approved Friday settles sexual harassment and retaliation claims by four victims against the restaurant chain.

magniX employees and staff have moved into the company's new 40,000 square foot office on Seaway Boulevard on Monday, Jan. 18, 2020 in Everett, Washington. magniX consolidated all of its Australia and Redmond operations under one roof to be home to the global headquarters, engineering, manufacturing and testing of its electric propulsion systems.  (Andy Bronson / The Herald)
Harbour Air plans to buy 50 electric motors from Everett company magniX

One of the largest seaplane airlines in the world plans to retrofit its fleet with the Everett-built electric propulsion system.

Simreet Dhaliwal speaks after winning during the 2024 Snohomish County Emerging Leaders Awards Presentation on Wednesday, April 17, 2024, in Everett, Washington. (Ryan Berry / The Herald)
Simreet Dhaliwal wins The Herald’s 2024 Emerging Leaders Award

Dhaliwal, an economic development and tourism specialist, was one of 12 finalists for the award celebrating young leaders in Snohomish County.

Lynnwood
New Jersey company acquires Lynnwood Land Rover dealership

Land Rover Seattle, now Land Rover Lynnwood, has been purchased by Holman, a 100-year-old company.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.