Why Tax Cut Bonuses Ring False

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Every once in a while, when a baseball player hits one out of the park at an away game, the fan who catches the ball throws it back on the field.  Why celebrate the opponent’s achievement? As rebukes go, it’s not subtle.

Sometimes I wonder if the rank and file employees who got $1,000 “tax cut” bonuses might give it back to their employer or start lighting cigars with $50 bills. The list of companies giving $1,000 bonuses to employees in the wake of the tax cut keeps growing.  AT&T, Alaska Air, Charles Schwab, U.S. Bancorp, Tyson Foods and Comcast, among others, have doled out $1,000 raises

While a thousand dollar bonus is nice, a look at the numbers reveals that in many instances, these bonuses are not so nice.

At AT&T, approximately 200,000 employees got a $1,000 bonus for a total outlay of $200 million.  Based on AT&T’s 2017 10-K filing, the company reported a tax benefit of $20.2 billion from the the new tax law. As a result, the $200 million employees got was less than one percent, i.e. 0.99%, of the benefit that was conferred upon AT&T and its shareholders.

I’m not sure why AT&T didn’t allocate the entire sum of the tax savings to employees, which would have been ~$100,000 each.  Now that would be a bonus. 

Over at Comcast, another 200,000 employees received a $1,000 bonus at a cost of $200 million.  In the notes to Comcast’s financial statements, the company said the 2017 Tax Act delivered a $12.4 billion reduction in the firm’s tax liability.  So, the $200 million is just 1.6% of the savings.  In accounting parlance, it would not be considered material.

The list goes on an on.  At Southwest Airlines, the company's tax liability swung from $1.3 billion to a credit balance of $237 million for a total benefit of about $1.5 billion.  Of this amount, employees got $56 million in $1,000 bonuses, or about 3.7% of the benefit . . .  At conservative broadcaster  Sinclair, no doubt a big proponent of tax cuts, employees did a little better, getting about a third of the total tax benefit the company claimed in its 2017 10-K filing. Airline JetBlue’s 21,000 employees got just 3.7% of the $570 million tax benefit the company booked.

A fair question in many cases might be: What happened to the other 95% of the benefit?  If the rank and file don’t deserve this largesse, who does?

When I saw these bonuses being announced one after the other, I got that same queasy feeling when in 2015, Wal-Mart, under fire for low wages announced a $1 billion commitment to higher wages and skill development.  Wow, that’s a big number.  Who could argue they weren’t serious about wage growth?

It turns out just about anyone with an abacus could, because the $1 billion was one quarter of one percent of what Wal-Mart paid for the products it sold the prior year. Said differently, if Wal-Mart extracted a price concession of $2.79 for every $1,000 of goods it purchased, they could have funded the $1 billion in perpetuity.

This notion of perpetuity is perhaps the most pernicious aspect of tax cut bonuses. That is while the tax benefits are realized and enjoyed year in and year out, the bonuses are not. AT&T took pains in its press release to identify their bonus as a special, one time event.  This means that over time the take of the rank and file gets smaller and smaller. For instance in year two, ceteris paribus, employees are getting just 0.49% of the tax benefit, and in year three it’s just 0.33%, below the level that might be considered a rounding error.

Then again, while these tax bonuses have the whiff of spin to them, it could be worse.  For companies that didn’t even offer a one-time bonus, the reasonable question to ask is, “What’s your excuse?”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Taxes , Economy , Jobs

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David Evanson

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