Georgia's corporate interests and conservative lawmakers hailed this week's passage of the Republican rewrite of the nation's tax code. But whether the divisive bill will be the jobs and investment bonanza that its backers say it will be must be taken with a grain of salt, some experts say.
Within hours of Congress sending the overhaul to President Donald Trump's desk, GOP lawmakers pointed to announcements by some blue-chip companies to give bonuses to workers, raise pay or make sizable investments in their businesses.
AT&T announced $1,000 bonuses for more than 200,000 employees, plus plans to invest $1 billion in its U.S. operations in 2018. Comcast and Fifth Third Bank also announced one-time bonuses for many workers, while Fifth Third and Wells Fargo announced plans to hike their minimum hourly wages to $15.
The tax bill “creates an environment where businesses and innovators can grow, create jobs and increase wages for hard-working employees,” said U.S. Rep. Drew Ferguson, R-West Point.
Several of Georgia’s biggest companies largely dodged questions this week about whether their tax savings will translate into immediate job and wage growth.
In prior remarks, however, some signaled much of those dollars would go to buying back their own stock and increasing dividends, not necessarily to big investments in jobs and facilities.
Critics of the Republican tax plan point to nonpartisan congressional estimates that show it will add another $1 trillion to deficits over the next 10 years — even after accounting for the economic growth it's expected to generate — with much of the tax benefits flowing to the wealthy and corporations at a time when large businesses are already enjoying historic profits.
“In the vast majority of mainstream economic research, the benefits to growth of tax cuts are minimal at best,” said Wesley Tharpe, research at the Georgia Budget and Policy Institute. “The benefits of corporate tax cuts to workers are minimal at best.”
The White House, Trump’s economic advisers and congressional Republicans have dismissed the nonpartisan Joint Committee on Taxation’s analysis that the bill would add substantially to the nation’s debt. They argue those economists used flawed models and that the tax cuts will pay for themselves.
“Having lived abroad and having run these multinational companies, I know that what we’ve just done is going to be extremely stimulative for the economy,” U.S. Sen. David Perdue, R-Ga., a former Fortune 500 CEO, said earlier this month.
But estimates by the Federal Reserve, Goldman Sachs and others don’t show tax reform adding much fuel to the economy.
The bulk of the tax savings, Tharpe said, will go to shareholders, investors, CEOs and top earners “rather than workers and their families.”
Seth Hanlon, a senior fellow at the liberal think tank the Center for American Progress, raised questions about the motives of the large corporations that announced raises and bonuses for employees.
“I don’t think it’s any coincidence that the companies that put out the press releases immediately were those that have major regulatory business before the Trump administration,” he said.
AT&T is currently working to convince the Justice Department to approve a proposed merger with Time Warner amid antitrust concerns. Wells Fargo is looking to rehab its public image after a major banking scandal, while Comcast just won a major lobbying victory before the Federal Communications Commission on Obama-era net neutrality regulations.
Trump has used Twitter and public appearances to cheer on companies that have announced hiring sprees or plans to keep jobs in the U.S.
‘A little bit of theater’
Caroline Fohlin, an economics professor at Emory University who specializes in corporate finance, agreed that there is “probably a little bit of theater” given the timing of the announcements.
“These are big corporations and they’re held by shareholders and the main goal of management is to maximize shareholder value, so that’s what they’re going to do,” she said.
She said a tax cut alone is likely not going to impact the way large corporations make labor decisions.
“They give raises when there’s pressure in the labor market because there’s a tight supply of labor,” Fohlin said, rather than because of a specific tax cut.
Most projections show the tax reform plan isn’t paid for, meaning it’s expected to increase deficits and the debt, and that will put pressure on the federal government to slash spending. That could put greater pressure on the state of Georgia to fund needed services such as infrastructure and health care programs, or make cuts.
More competitive?
In November, Coca-Cola CEO James Quincey told CNBC that Coke supported a "more competitive, simpler tax structure," and expected the company to return money from overseas if approved.
“We would bring some of it back and be able to invest more here in the U.S., and actually, we would use some of it for dividends as we always do,” Quincey said.
Coke has been slashing costs, including corporate jobs, as it streamlines its business. Asked at the time about job growth and wages at the company with tax reform, Quincy said, "I think, principally, it's not our short-term change.
“It’s not like there’s a big box of money out there that suddenly comes back and gets reinvested by us in 2018,” he said.
In a statement, Coke said the company supports the tax plan because it will help it and other U.S. companies better compete globally, and “better enable us to reinvest in our U.S. business system as we continue our transformation into a total beverage company.”
Sandy Springs-based UPS, the world’s largest shipper, said the lower corporate tax rate will lead to growth among its customers as the nation’s GDP expands. UPS launched 12 expansion projects nationwide in 2016 and 2017, the company said, which will create about 14,000 new jobs by the end of next year.
Atlanta-based Home Depot has not yet decided whether to take any actions in response to the new tax law, said spokesman Stephen Holmes.
The company recently announced $15 billion buyback of stock, a plan that preceded passage of the tax changes. Home Depot also announced this month it will pour billions more into improving operations and supply chain, as well as boosting employee wages.
Nathan Humphrey, National Federation of Independent Business state director in Georgia, said he “absolutely” expects small businesses to reinvest their tax savings into capital investments and hiring.
The bill lowers many pass-through businesses’ tax liabilities by providing a 20 percent deduction on such income, Humphrey said, providing small business owners with “confidence to make these investments.”
Cade Joiner, the owner of a paper shredding business in Griffin, said he’s considering buying a truck and adding a new employee in the wake of the tax overhaul. Joiner owns Shred-X and employs 12.
The company has mobile paper shredding equipment and a shredding plant and services about 3,000 customers in Georgia.
“There are a lot of small business owners out there,” Joiner said. “People forget collectively that small biz employ more people than big businesses do.”
Staff writer Michael E. Kanell contributed to this report.
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