During his 2016 campaign,
Donald Trump bragged that if he became president, “everybody
is getting a tax cut, especially the middle class,” referring to his
proposed 35 percent tax cut. President Trump’s actual tax bill, however, was
vastly different from what candidate Trump mentioned in his campaign speeches.
Seven months after the GOP tax bill went into effect, a Politico analysis of
Securities and Exchange Commission data reveals that instead of enriching
middle-class Americans, “Some of the biggest winners from President Donald
Trump’s new
tax law are corporate executives.”
These executives, Politico
explains, “reaped gains as their companies buy back a record amount of stock, a
practice that rewards shareholders by boosting the value of existing shares.”
In addition to their salaries, many corporate CEOs and other high-ranking
executives receive compensation in stock. Since the tax bill, which cut
corporate tax rates to 21 percent, was passed on Dec. 22, 2017, these
executives, according to Politico, “have
been profiting handsomely by selling shares.”
Politico reports that “Wall
Street analysts expect buyback activity to accelerate in the coming weeks.”
“It is going to be a parade of
eye-popping numbers,” Pat McGurn, the head of strategic research and analysis
at Institutional Shareholder Services, a shareholder advisory firm, told
Politico.
All this is in sharp contrast
to Trump’s promises of a tax cut that would benefit the middle class. What’s
more, reports of already wealthy executives getting even richer off stock sales
following the tax cut could, Politico observes, “undercut the political
messaging value of the tax cuts in the Republican campaign to maintain control
of Congress in the midterm elections.”
Democratic congressional
candidates could easily create campaign ads highlighting how Oracle Corp. CEO
Safra Catz sold $250 million worth of Oracle shares, the most shares sold by
any executive. Or they could mention Mastercard’s Ajay Banga, who sold $44.4
million worth of stock one day in May, which, according to Politico, is “the
largest single cash-out by an executive of the company in at least 10 years,
months after the company announced a $4 billion buyback of its own stock.”
Politico found similar stock
sales by executives from cigarette maker Altria, Eastman Chemical,
biopharmaceutical company AbbVie, and TJX Companies (the parent company of TJ
Maxx).
This practice of insider
sales, Politico says, “feed[s] the narrative that corporate tax cuts enrich
executives in the short term while yielding less clear long-term benefits for
workers and the broader economy.”
Politico found that following
the passage of the tax cuts:
Roughly 28 percent of
companies in the S&P 500 mentioned plans to return some of their tax
savings to shareholders, according to Morgan Stanley. Public companies
announced more than $600 billion in buybacks in the first half of this
year—already toppling the previous annual record.
Critics are also concerned
about the connection between buybacks and insider sales. SEC Commissioner
Robert Jackson, a Democrat, said that the link is clear. Politico reports: “He
[Jackson] studied 385 buybacks since the beginning of 2017 and found that after
half of them, at least one executive sold shares within the next month.”
Companies told Politico that
critics were falsely looking for connections where there were none, defended
the legality of the buybacks, or declined to comment.
Voters may not care about the
intricacies of securities law, buybacks or insider sales. They might, however,
care that the CEOs of major corporations are getting wealthier—as their own
paychecks decline.
