Where are corporate tax cut savings going? Details are scarce
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The Tax Cuts and Jobs Act was celebrated by Republicans last year as a measure that would usher in new economic growth, business expansions, more jobs and wage increases long held back by the high tax rates levied on U.S. businesses. The corporate tax rate dropped to about 21 percent from 35 percent, a significant decrease that saved many Tennessee companies millions — or hundreds of millions of dollars.
So where has the money gone? Many companies won’t say or are scant on specifics. Several publicly traded companies in Tennessee have issued news releases announcing bonuses or minimum wage increases, but few have offered details on the size and scope of those raises. Meanwhile, privately held companies in Tennessee have been reticent to share any of their spending strategies.
“We know what particular companies
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Raises, bonuses, buybacks and expansions
Many publicly traded companies have announced better paychecks or greater benefits as a result of the tax cut, but just how many people saw gains and the size of their wage increase are unclear.
Some firms, however, offered some details about the savings and how they are being directed.
Memphis-based packaging giant FedEx, which saw $1.6 billion in savings as a result of the new tax law, is allocating more than $200 million to increased compensation, with twothirds of it going to pay increases for hourly employees, which have been advanced by six months. The remaining amount goes to salaried staff. The
company did not share the size of the increase or how many people were affected.
The company also committed $1.5 billion to its pension obligations, as well as $2.5 billion to expansions and improvements to hubs in Memphis and Indianapolis.
First Horizon National Corp., parent company of First Tennessee bank, gave a $1,000 one-time cash bonus to 70 percent of its employees, or 4,000 people. It also increased its minimum wage to $15 an hour and contributed $16 million to the First Tennessee Foundation, which funds nonprofits in areas it serves.
“As a result of the recent tax reform, First Tennessee invested a portion of the tax savings back into our people and our communities to strengthen our business,” said Bryan Jordan, First Horizon’s chairman and CEO.
For Unum, a Chattanooga-based insurer, the tax cuts yielded $90 million this year, savings expected to climb to as much as $200 million in the coming years, a company spokesman said. The company said it is boosting its minimum wage to $15 for about 500 workers, half of whom live in Tennessee, and offering parental paid leave to new mothers and fathers.
Unum also said it is investing $1 million into employees’ communities and spending $100 million on workplace renovations in several locations. .
Tractor Supply CEO Greg Sandfort underscored the need to pay workers competitively in a January conference call and said the Brentwood-based company will advance wages at stores and distribution centers as a result of the new tax law. The company employs 1,200 in Middle Tennessee.
“Given some of the tax advantages that we have, we’re going to stay not only very competitive on wages, but in many cases, we’re going to be probably the person maybe leading up in the wages because we need to make sure we’ve got the best people, period,” Sandfort said.
Tractor Supply, which had an income tax expense of $250 million in 2017, also plans to invest in new stores and online sales, and return money to shareholders through share repurchases and dividends. The company did not elaborate on how much will be allocated to those investments or the size of the wage increases.
For HCA in Nashville, the tax cut means a nearly 30 percent increase, or $2.3 billion more, in capital spending during the next three years that will go to facility improvements, new facilities and greater technology. The company expects the spending to drive growth and add jobs, CEO Milton Johnson said in a conference call this year.
Along with initiating a 35 cent quarterly dividend to reward shareholders, HCA also announced a $300 million investment in the workforce that will go to education programs for nurses and caregivers, tuition reimbursements and scholarships for employees and greater family leave.
“We believe these programs will help improve patient experience and create more career opportunities for our employees,” Johnson said in the call.
Kingsport, Tennessee-based Eastman Chemical said it was investing savings in research and development, innovation programs and capital projects to expand manufacturing. International Paper, AutoZone and Community Health Systems did not respond to media requests, and Dollar General declined to describe how it would allocate its saved income.
Urban-Brookings Tax Policy Center co-director Eric Toder said it is difficult to directly link spending choices to the tax law as other factors are influencing strategies,
“Maybe they would have expanded anyway,” Toder said. “Maybe there’s tight labor markets, and they are going to raise their wages. Maybe they were planning to pay out a dividend. It’s really hard to know.”
The expectation was not that companies would distribute higher wages because they had more money available to disperse, but that the investments would lead to productivity increases that would translate to greater earnings, said Erica York, an analyst at the Tax Foundation. The tax policy nonprofit has described the Tax Cuts and Jobs Act as a pro-growth reform expected to increase wages and add jobs.
“Wages are largely determined by productivity,” York said. “The way we expect a corporate tax rate reduction to boost wages is, over the long run, new investments makes workers more productive.”
For companies considering paying out bonuses, it was financially advantageous to offer them at last year’s tax rate than this years, Toder said. Rather than backing a wage increase, a bonus is a one-time cost and does not lock companies into wage structures that are difficult to reverse.
“They got some favorable publicity for doing that, and it was a way for some big companies to indicate their support for what the administration did,” Toder said.
While capital investments are growing based on first quarter data, the growth rate is similar to last year’s, Gardner said. Tax cuts are most effective at spurring economic activity during downturns, when capital is tighter, he said.
“No one can say with a straight face that before the tax cuts that companies needed more cash on hand,” Gardner said. “If they had ideas about what they wanted to spend their money on, in terms of production capacity, they generally had the cash to do it. If they weren’t doing it, it wasn’t because they didn’t have the money. It was because they didn’t see the demand.”
Meanwhile, the amount of share repurchases among U.S. companies benefiting shareholders has reached a new record. According to New York-based Yardeni Research Inc., share repurchases from S&P 500 companies reached close to $190 billion in the first quarter, a record level well above previous quarters.
“We are seeing a sea-level change in the pace of corporate stock buybacks,” Gardner said. “That is the one clear change in economic indicators that we have seen as a result of these tax cuts. Companies are buying back huge amounts of their stock from shareholders, and it’s not at all obvious that that is going to have a positive effect on anyone except corporations and their shareholders.”
Privately held firms mostly mum
Of the largest privately held companies in Tennessee, few elaborated on their spending plans.
Asurion Chief Financial Officer John Storey pointed to the company’s new headquarters being built, which was announced in February, and said the company paid a special bonus to employee teams this year. He did not elaborate on the size and scale of the bonuses.
Pilot Flying J, H.T. Hackney, Life Care Centers of America, Evergreen Packaging, Ardent Health Services and Ingram Industries declined to comment or did not respond to media requests.
Private companies with ties to gubernatorial candidates who have been supportive of the new tax law also declined to share spending plans.
Radio Systems Corp., founded and chaired by former Republican gubernatorial candidate Randy Boyd, was still assessing the impact of the tax cuts, said Chief Financial Officer Chris Chandler. The company is expanding its facilities and hiring new employees in Knoxville, but those investments were already underway and were not directly tied to tax savings, he said.
Aegis Science Corp., founded by former GOP gubernatorial candidate Diane Black and her husband, David Black, did not respond to requests for comment. Black’s campaign spokesman Chris Hartline said Diane and David Black sold their majority stake in the company, and have no role in day-to-day operations. David Black stepped down as CEO in 2016.
Lee Company, owned and chaired by GOP gubernatorial candidate Bill Lee, did not respond to media requests, and Lee’s campaign referred questions to the company.
Economic growth and jobs
Determining the impact on company spending through economic and investment data will take a few years, and even then it will be challenging to parse out the effect of other factors, such as tariffs, Toder said. But looking at the overall economy in the past six months, the tax cuts could be viewed as contributing to growth.
“The expectation is that with lower rates, businesses would spend more and households would spend more because they are getting a tax cut and the result would be more demand for goods and more expansion and more jobs,” Toder said. “Certainly the performance in the first two quarters of the years is consistent with that expectation. We don’t know for sure if that is the cause.”
The Tax Foundation estimates that Tennessee will see more than 4,400 additional jobs from the Tax Cuts and Jobs Act this year. The nonprofit forecast in December that, over time, the tax law would spur a 1.7 percent increase in the gross domestic product, bump wages by 1.5 percent and yield 339,000 new jobs.
“The job impact we expect to see is a long-run phenomenon, so it could be 20 to 25 years before it manifests,” York said. “Companies plan those investments, they build the new factory or invest in new tools for their workforce to use, production increases and then that translates to more workers or higher wages or a combination of both.”