Don't believe that bonuses are because of tax law changes

It has been reported over the last few weeks that the new tax law by the Republican Congress and signed by President Trump has spurred a round of bonuses, stock options, 401(k) matching boosts, and, in some cases, an increase in hourly wages for working class Americans.  Of course, those that are supporting the tax changes are touting the windfall to workers as proof that the tax law is working.  

But, let’s look a little deeper at the issue.

Let me be clear, I am not against giving more money to the workers in a corporation instead of mangers.  A bonus is wonderful.  It will allow workers that receive the money to go out to dinner, purchase some clothes, pay down debt or, for better off workers, place some in the bank.  Any money that falls into the hands of working class families means that almost every dollar will boast the economy because most every dollar will be spent on consumer goods or paying off debt.

The downside is that a bonus doesn’t allow a worker to make plans, like purchasing a new car or purchase a new home.  Bonuses don’t obligate a company to continue paying throughout the years.  It is better to give workers a living wage instead of a bonus now and then. 

“If all these corporations were coming back with wage increases it would have a more substantial impact on consumers,” according to Edward Yardeni, president and chief investment strategist at Yardeni Research. 

Additionally, a bonus does nothing to close the gap between the top earners in a company and the bottom earners.  That is where the real boost must happen.

But let’s examine if the bonus is a result of the tax change or something else that is more dangerous.

Here is a quick view of how the tax changes in theory are going boost wages for working class people.  With a lower tax rate here in America, companies will have an incentive to invest in plant and property in the United States instead of overseas.  It makes sense because with the profits from such investments, the companies will pay less taxes.  Workers then will become more productive and more valuable as a commodity in the market place.  Companies will then begin competing for the workers, which will in turn increase wages.

These advantages for the workers are not something that will come about in just a days or weeks after the tax changes.  It is something that will take place over many years.  Even the republicans during the debate surrounding the tax changes occasionally mentioned the fact.

So, if it is too soon for bonuses and wage increases from the tax plan, you must ask why is this happening?

First, these bonuses and wage increases are something that would have happen anyway or having been happening about this time of year, every year.  A corporation doesn’t turn around in just a few weeks and give millions of dollars away.  This is something that takes a long time to plan and work through a process for approval and find funding.  As an example, Apple announced after the tax changes that it is bringing back over $350 billion to the US for an investment in their business.  Tim Cook is quoted as saying that there is, of course, a nice benefit from the new tax law, but it is something that has been planned for a long time.

There are two other things that must be considered as to the reason corporations are making such a big deal tying the bonuses to the change in the tax law.  The first is that they are attempting to curry favor with the Trump Administration, according to Alan Viard of The Hill.  Trump’s pro-business agenda has made it easier for business to operate.  Trump has reduced regulations, decreased taxes and is less likely to interfere with general business behavior in the market place than past administrations, republican or democrat.  By placating to Trump on the bonuses they make him look good.

The second is more insidious than the above.  They are attempting to purchase votes and interfere in the next round of elections in favor of the republican party.  The business climate in the United States is the best it has been in decades.  If business can keep the republican’s in charge through the 2018 election process and for the next presidential cycle, the business environment may return to the laissez-faire policies of the late 1800s.  By suggesting that the money their workers are getting is because of republican policies they may be able sway many workers to vote republican.

Don’t be fooled.  The bonuses are not because of the tax changes.  Business is trying to do the same thing we fault the Russians for doing, interfering with the American election process.