Tax Relief Pays American Workers

Key Takeaways

• At least 123 companies have announced plans to pay bonuses or raise wages in response to the Tax Cuts and Jobs Act.
• This includes bonuses of $1,000 or more, raising wages to at least $15 per hour, and increasing contributions to pension plans.
• This is evidence that a substantial part of the corporate income tax is borne by workers, many of whom are now benefiting directly from the reduced rates.

Almost immediately after Congress passed the Tax Cuts and Jobs Act, American workers at dozens of firms began to see the effects in the form of bonuses and raises. For supporters of tax relief this was good news, though not altogether a surprise. During debate over the law, economists cited research that workers bear most of the burden of the corporate income tax via reduced wages. The remainder is borne by consumers and investors. A significant cut in the corporate rate would provide real benefits to workers.

One study by scholars at the American Enterprise Institute concluded that a 1 percent increase in the corporate tax rate is associated with a 0.5 percent decrease in real wages. A 2007 Treasury Department survey of economic studies found that workers “bear a substantial burden” of the corporate income tax. The Congressional Budget Office concluded in 2006 that workers pay more than 70 percent of the cost of corporate taxes.

More than 120 Companies Show Tax Cuts Benefit All

The same day the House and Senate passed the bill, December 20, AT&T Inc. issued a press release saying: “Once tax reform is signed into law, AT&T plans to invest an additional $1 billion in the United States in 2018 and pay a special $1,000 bonus to more than 200,000 AT&T U.S. employees — all union-represented, non-management and front-line managers. If the President signs the bill before Christmas, employees will receive the bonus over the holidays.”

So far, at least 123 companies have announced they are giving employees bonuses or otherwise increasing compensation due to the tax cut legislation. Notable examples include:

• American Airlines, Southwest Airlines, and JetBlue announced $1,000 bonuses for their employees (a total of more than 200,000 people). American’s bonuses will exclude officers; Southwest’s and JetBlue’s include all employees. American said it would pay bonuses “in light of this new tax structure.” JetBlue said that “our Crewmembers should be the first to benefit.” Southwest said it would put the savings from tax relief “to work … to reward our hard-working Employees.”

• AT&T announced $1,000 bonuses to its 200,000 employees. It also said that it will increase capital expenditures by $1 billion in 2018.

• Comcast announced a $1,000 bonus for more than 100,000 employees. In addition, it plans to invest $50 billion in its infrastructure in the next five years. Comcast said the bonuses are “[b]ased on the passage of tax reform and the FCC’s action on broadband.”

• Nationwide Insurance announced a $1,000 bonus for 29,000 employees and increased 401(k) matching. The company told its employees: “The combination of the new tax legislation, including a reduced corporate tax rate, and our associates’ ongoing commitment to our members, community and On Your Side promise are the reasons we’re making this investment that further enhances the already robust benefits we offer to attract and retain the best talent.”

• PNC Financial Services announced $1,000 bonuses for 47,500 employees as well as $1,500 to be added to existing pension accounts. The company also will raise its base pay rate to $15 per hour. PNC’s CEO said: “The tax reform law creates an opportunity to reward our employees who are working hard each day to serve our customers, build strong relationships in our communities and create long-term value for our shareholders.”

• U.S. Bank announced a $1,000 bonus for nearly 60,000 employees and enhanced health care offerings in the 2019 enrollment period. It will also raise base pay rate to $15 per hour. The bank said that these decisions were “a result of the tax reform package.”

COMPANIES increasing compensation, so far