Corporate Socialism Demands Accountability
How can we make U.S. companies accountable for the money we taxpayers give them, whether through tax cuts or bailouts? We need to answer that question as we face more potential corporate bailouts in response to the coronavirus crisis.
Only a couple years ago, in December 2017, the Tax Cuts and Jobs Act was enacted to lower the corporate tax rate from 35% to 21%. The cut was based on the idea of “trickle-down economics:” that the extra money the corporations got would be used for more hiring and wage increases, and more long-term investment in their businesses, further stimulating the economy and producing more tax revenue from the increased corporate activity. Thus, the benefits we gave to corporations would trickle down to also benefit all Americans, including lower- and middle-income families, while making American businesses more competitive. But that wasn’t quite how it worked.
Instead of using those extra funds to increase hiring, wages, and investments, corporations often utilized stock buybacks to return the additional profits directly to their shareholders. Indeed, during the first three quarters of 2018, corporate stock buybacks were up 52.6% over those made in 2017, while capital investments during that same period increased by only 8.8%.
Thus, according to data from the non-partisan Urban-Brookings Tax Policy Center, the majority of the benefits from the corporate tax cuts did not go to lower- and middle-income families; rather 65% of the benefits went to those earning $149,400+, generally the companies’ stockholders.
Those numbers are important to remember as we consider economic responses to the coronavirus crisis. Many of those same companies that used their excess profit from the tax cuts to buy their shares back – instead of shoring up their balance sheets, improving benefits for their employees, and planning for leaner times -- are now looking for bailouts from us, the American taxpayers.
For example, over the past decade, the five largest U.S. airlines, which are now facing significant financial hardship, spent 96% of their free cash flow on stock buybacks.
Yes, nearly all that cash, including what the U.S. taxpayers gave them through the 2017 tax cuts, went directly to their shareholders. And now they are asking us to give them $50 billion of our tax dollars.
We need companies to be accountable for the money we taxpayers return to them. When we engage in such government socialism for corporations (yes, that’s what these actions are), we can’t allow companies to recklessly use our money to enrich their own stockholders, and compensate their executives with exorbitant paychecks, then fall back on the argument that their business is too essential to allow them to fail when a crisis hits.
The many socially irresponsible responses to the windfalls provided by the Tax Cut and Jobs Act are reminders that when we offer a bailout, we must develop a framework that does not allow corporations to use those funds for quick paydays for their shareholders, rather than building sustainability.
Whether it is limiting executive compensation (i.e., compensating executives through long-term benefits such as 30-year corporate bonds, rather than stock options), or requiring that some of the funds be dedicated to increasing worker benefits, we must demand that our politicians and our corporations think long-term if they want our hard-earned taxpayer money.
So, while we have little option but to bail out the industries hardest hit by this health crisis, those bailouts must include a long-term focus that strengthens sustainability and serves America’s interest as a whole.
“It’s only when the tide goes out that you learn who has been swimming naked.”
-Warren Buffett
