The Daily - Wednesday, Feb. 7, 2018

Episode Date: February 7, 2018

When Republicans handed out large tax cuts to corporations, most economists rejected lawmakers’ claims that the benefits would trickle down to working Americans. So why do many companies seem to be giving their employees more money? Guests: Jim Tankersley, who covers taxes and the economy for The New York Times; Wes Carter, the president of Atlantic Packaging in Wilmington, N.C., who spoke to Sabrina Tavernise, a Times reporter. For more information on today’s episode, visit nytimes.com/thedaily.

From The New York Times, I'm Michael Barbaro. This is The Daily. Today, when Republicans handed massive tax cuts to corporations, most economists rejected their claim that the companies would give that money back to working Americans. So why do companies seem to be doing just that? It's Wednesday, February 7th. So when the tax bill was being debated at the end of last year, there are basically two stories out there. Jim Tankersley covers the economy for The Times. The story that the Democrats were telling and the story that Republicans were telling. The story the Democrats were telling was that the bill was not really going to help workers very much. This GOP tax scam is simply

theft from the American middle class and from every person who aspires to reach it. The bulk of the bill was going to corporations and corporations would largely keep that money, pass it on to shareholders. Who disproportionately benefits from these reforms? It's not that middle class family. And you can't deny the fact that there are many middle class families that are going to pay more as a result of this bill. It would not find its way into most workers' paychecks. The Republican story was a bit different. So we're going to lower the taxes on this business so it's globally competitive, so it can compete with this foreign competition. Then we're going to give this business an ability to write off the investments that they make in this business to buy more machines,

to hire more workers, to raise wages. That to us is really important. They believed that the corporations would take the money and not just invest it, but invest it in things that would actually boost workers' productivity, making them more valuable to their companies. And then workers, because they're more valuable, would get paid more. And so by that argument, eventually workers would see raises because of the corporate tax cuts. However – There's no evidence that this is going to be a stimulus to the economy. There's no evidence that it's going to trickle down to the middle class. There's no evidence that the middle class is going to benefit from this. Corporations are already sitting on record

amounts of cash. And if they wanted to reinvest it and if they wanted to pay people more money, they would have done so. I mean, the hope is that if there's a corporate tax cut, that it trickles down to regular folks who work every day for a living. I'm not convinced that's going to happen. The broad expectation was that most of the benefits of the bill would go not to your typical American worker, but to higher-end Americans, higher-earning people, corporations and their shareholders, who tend to be the very rich. Let's begin with some breaking news from overnight.

The Tax Cuts and Jobs Act is passed. Vice President Mike Pence there in case he had to cast the deciding vote. It's a major victory for President Trump, who immediately tweeted... The United States Senate just passed the biggest in history tax cut and reform bill. Republicans cheered as they passed the most sweeping tax overhaul in three decades. President Trump is now on the verge of taking a tax victory lap. Where were you when you learned that the tax plan had passed? Do you remember? I think I was in my office. I can't remember the exact moment, but I was extremely excited.

My colleague Sabrina Tavernisi talked to Wes Carter, the president of Atlantic Packaging in Wilmington, North Carolina. So, Wes, tell me about your business in as plain English as you can muster. That's the only way I know how to talk. Okay, that's good. We're a 70-year-old packaging business. My grandfather started the company back in the 40s. We sell high-end packaging equipment and packaging materials to major consumer products companies. What's an example, Wes?

Like the paper board that would go around a frozen pizza, for instance. We do a lot of business with Burt's Bees, so a folded carton that would hold chapstick, that kind of thing. So when I knew for sure that the tax reform was going to pass, I called my father, who's our CEO, and we discussed, hey, you know, what does this mean for us? You know, we're going to have some additional dollars to invest in the company and to invest in our people. And this is sort of a once in a generation opportunity. You know, we've never had a situation where we had that much of a benefit from one decision in Washington. What we saw right away after the bill passed was something that, and I can't stress this enough, no economist predicted was going to happen.

Call it a tax cut bonus. AT&T saying it is giving more than 200,000 employees a $1,000 special bonus after the tax bill was signed into law. The very first company that I recall seeing a press release from saying they would invest in America and their workers before the bill even passed was AT&T. And then there was this stampede of companies who did the same thing. AT&T and Comcast now saying this tax reform package will mean $1,000 bonus. Comcast, Walmart. You're seeing Apple, you're seeing some major Fortune 500 companies. American Airlines.

Starbucks is also paying out. Bank of America and then a whole bunch of other banks. Fifth Third Bank Corp also paying out bonuses. U.S. Bank and Comerica. Retailers, various car dealerships who are announcing bonuses for their employees. Tens of thousands of employees about to get a $1,000 bonus check. Giving $1,000 bonuses to certain workers. $1,000 checks.

$1,000. $2,500. $2,500 there. But I just wanted to add that extra emphasis to them to know that the reason they were each getting $1,000 was because of the tax plan that the GOP and President Trump had put together. It starts rippling through the economy and soon you had some three million American workers who were receiving bonuses, according to Americans for Tax Reform. A few other major companies at that point had announced

bonuses and things like that. And we thought that was an incredible thing to do. And my father and I spent, you know, I guess about a week or 10 days talking about it and saying, hey, how do we want to do this? And, you know, we have a thousand employees. So we, you know, figured out, you know, how that was all going to shake out. And Wes, what happened next? What did you decide to do? We drafted, you know, an announcement and actually went and found an image of a thousand dollar bill, which I don't think they printed in about 60 years in this country, maybe more. But we found an image of a $1,000 bill and put it at the top of a

letterhead and just wrote a note to our employees and explained that tax reform had passed, as everyone had heard. And we sent it out, and my inbox filled up. I had a few people walk in my office and say, is this true? Are you sure this isn't a joke? But no, it's been great. It is special, you know, and we were excited to do it. How significant is a million dollars in the context of your business? A million dollars is a big deal. It's a significant amount of money. Jim, what is going on here? The expectation was, as you laid out, that big corporate tax cuts wouldn't actually benefit workers. But isn't that what's happening?

Well, sure. These definitely benefit workers. Let's be really, really clear. It's much better to have an extra $1,000 in your pocket than not. And even if the government takes a cut of taxes from that $1,000, you're still with a lot more money than you would have had. So this is great for workers. It is not, however, a sustained wage increase to get a bonus. For the most part, when we're talking about bonuses, we are talking about a temporary change off what appears to be, and again, the politics could change and it could get repealed, but for what is right now written as a permanent bill. So if you are a company like Bank of America,

who is giving out a one-time bonus to your workers, that is out of a pool of money that is a recurring benefit, billions of dollars a year, you are telling your shareholders you're going to have. That is a drop in the bucket if you look at the overall span of the lifetime of the bill's benefits to you. So what we're seeing here is that companies are actually getting a permanent change. But companies are passing on one-time payments to their workers. Workers are not getting a permanent change. And what's going on here is that bonuses are kind of like a sugar high. They're a nice thing to have.

You certainly get a perk from it. But it's not something you can count on as a sustainable meal. In the long run, you don't budget house payments based on a one-time bonus. You might go out and buy a new TV, but you're not able to change your actual quality of life or see a recurring difference in your bottom line. Some workers are getting just bonuses from their companies, but other companies are actually giving wage increases,

like Walmart, which is giving a minimum wage increase across its stores on a faster timetable than it would have before. And this is where the question about whether the bill ends up raising wages comes into play, because if it doesn't raise wages, that ends up looking like a very bad trade-off for the American worker. But if it does, it may be a different story.

When will wages start rising for most American workers? It's a nagging question. If you look at the last few decades, from the standpoint of a typical American worker, their wages have basically not moved. A majority of U.S. workers have experienced a decade of flat wages. Well, before the Great Recession, wages had already started to stagnate. Instead, they have watched as the economy has grown a lot, and the very rich have gotten a lot richer. The red line are corporate profits, the blue line

are wages. And you can see that corporate profits are up by 35 percent over this roughly five, six year period now almost. And wages are only up 5.3 percent. And it's only been in the last couple of years that those typical workers have started to see their paychecks increase. And then last week, 200,000 jobs added last month. That's a big number. The bigger headline, though, is that paychecks wage growth is way up and it's the fastest pace we've seen in years. We saw wages increase at the fastest pace since we've seen since the recession, since eight years ago. We had a jobs report for the month of January that showed us the fastest wage growth since 2009. Great news for workers and a sign that wage growth might really be back and here to stay for the first time in quite some time.

So, Jim, why is it that wages have started to increase now? Wages are increasing now because the labor market is getting tight. Unemployment is low. There are fewer people looking for work, which means employers have to compete more to hire people and hire good people, which means they've got to pay them more. And that is all happening before the tax bill even passes, before any tax cuts start to work their way into workers' paychecks, and before companies start to see the big windfall from the corporate tax cuts. Wait, so what you're saying is that some of these companies like Walmart were already going to raise wages anyway?

Absolutely. Yeah. If you look at the labor market right now, it is hard to keep workers. And so because of that, Walmart is boosting its minimum wage and handing out bonuses. And who made that possible? President Trump. Walmart is the latest company to make such an announcement directly result of the tax cuts act. Walmart has been raising wages even before there was a tax bill here. They were raising their own minimum wage. FedEx said that they couldn't raise wages until they got this tax cut. Boeing. Starbucks has been raising its own minimum wage. JPMorgan Chase announced this morning that because of the Trump tax cuts, they will raise

wages for 22,000 of their employees, create thousands of new jobs, and increase small business by lending $4 billion. So what we are seeing now is it may be an acceleration of the process to raise wages, but it also is just a very good business decision. Walmart really upping its game. The new Republican tax law, they say, is the reason why. And that's all thanks to a new tax reform bill. For which JPMorgan Chase directly credits the passage of the Tax Cuts and Jobs Act. Jim, it sounds like some of these corporations are acting like the wage increases are connected to the tax cuts. Why is that?

They're acting like it because it's a positive feedback loop with lawmakers and companies. Companies are appreciative of having more money and lower taxes from lawmakers. They turn around and say, thank you to the lawmakers for giving them that extra money. And in turn, the lawmakers can tout the company's announcement, see, you're getting more money, workers, as proof that the law is working. So what the companies and the lawmakers are doing right now is locking themselves into this virtuous cycle and telling each other, great job, we did great,

let's keep going, in hope of selling the bill so that it stays forever. In a sense, the announcements are kind of a PR campaign for the bill itself. They are. Whether they're intended to be or not, the announcements are certainly telling the American people, hey, there's good stuff for you in this bill, which until it was passed was being derided and framed by Democrats as being mostly for the rich, not very much for

you. But I think it's much more likely that what they're really doing is seeing an incredible opportunity for good publicity here. When you are a company that says we are giving workers a bonus or a wage increase and then it's suddenly all over the news, that's great free advertising. And right here in Cincinnati on this very beautiful factory floor, the Sheffer Corporation announced that every single worker was getting a $1,000 tax cut bonus. You are so generous. Thank you. Congratulations, everybody. That's good. Wes, you know, some of the worry about tax reform and about giving businesses tax cuts is that historically, you know, the surpluses don't end up in employees' pocketbooks. But when you decide to give bonuses to all your employees after the tax cut and to announce that decision, I mean, was part of your thinking to communicate that the tax bill was a good thing? The tax bill was actually going to help real people? Well, I think that's probably true, although I don't think that was necessarily our motivation. Certainly, we absolutely agree

that this is a good thing, and it helps American companies, which in turn helps American workers and raises things for everyone. But it wasn't our motivation to make some sort of statement about our position. Maybe we did. I hope we did on some level. I mean, because I think it's important that people understand that dynamic, that a healthy U.S. economy, healthy U.S. businesses is good for all working Americans. And Wes, what would your argument be then about your own company and the public relations thing? I mean, if I was to say to you, Wes, this seems like it's something to make yourself look good. I would, I mean, I don't think that's a fair portrayal of what we're doing.

I certainly do not believe in any way, shape, or form that was how this was interpreted by our employees. I mean, our employees are overjoyed. One lady said she was going to help pay off her daughter's tuition, which she didn't think she was going to be able to do in that timely of a manner. So she was really excited to do that. We had another employee who said that they were going to use the money to finish their U.S. citizenship, which was a really cool thing. You know, a lot of folks said, hey, this is going to pay my rent for the next several months. So, you know, having a reputable, benevolent reputation for our company is a good thing. Jim, we've talked on the show this week about the role of confidence in the economy. And I'm wondering, regardless of whether this publicity is based in PR or something else,

it's also kind of capturing or crystallizing this mood in the country that the economy has gotten better. And perhaps that's been happening all along, but this is sort of the first time people are kind of picking their heads up and realizing it. Whether or not the tax cut is really to thank for that. Is it meaningful that people feel better about the economy? Yeah, it's meaningful. It's a good thing. We should want people to feel better about the economy. And whether that is rooted in a long running trend or a short term policy change, if people are feeling more confident and optimistic, that often leads to very good things, a wave of investment. All that's really great and a relief because we've been living through a really rocky economy for a long time. The middle class has been feeling like they are struggling for years and years and

years, even after the recession ended. And it is a great thing for America that people are maybe sort of finally starting to feel like that cloud is lifting. What I think we would worry about is if that optimism turns out to be, like the bonuses, sort of a sugar high, and people a few months from now are feeling less so. And then you could see a kind of a crash. And Jim, in the back of my mind during this conversation has been the thought of the stock market crashing over the last couple of days. Is it somehow connected with all of this? Yeah, the stock market is reacting in a way that is very counterintuitive to this good economic news for workers. Investors in the stock market looked at it and appear to have said, whoa, we're worried about this.

They're worried that rising wages means rising inflation. And when the Fed is worried about rising inflation, it raises interest rates. Now, raising interest rates then slows economic growth. So what investors are saying is they're choosing to sell some of their stock now to beat the lower growth that the Fed may have in store for them because they're raising interest rates. So the irony in all of this, I mean, basically, you know, it feels like the market is mean, right? It's like most people want ordinary workers' wages to go up.

But now that it's happened, the market is saying, whoa, whoa, whoa, we're worried about this situation. I mean, this is not a huge cascading crisis yet in the stock market. But to some degree, what they're saying is maybe stocks were a little bit overpriced, given where the Fed may be taking interest rates because of inflation concerns. They're packing in a little bit of their gains from the long running time at the punch bowl, so to speak, and they're going to take those profits and go home. Thanks, Jim. Thank you.

We'll be right back. Here's what else you need to know today. On Tuesday, during a White House meeting on MS-13 gang violence, President Trump threatened another government shutdown if Democrats refused to agree to his demands on immigration reform. If we don't change it, let's have a shutdown. We'll do a shutdown. And it's worth it for our country. I'd love to see a shutdown if we don't get this stuff taken care of. The comment, which was seemingly off the cuff, was at odds with a strategy by Republican leadership to separate the immigration debate from the negotiations over a spending plan,

which Congress must pass by Thursday to avoid a second government shutdown this year. It was an impasse over immigration that caused the government to shut down three weeks ago. At the time, Senate Majority Leader Mitch McConnell persuaded Democrats to support a temporary spending measure and reopen the government by vowing to turn to immigration and the Dreamers on their own terms after the spending plan. That's it for The Daily.

I'm Michael Barbaro. See you tomorrow.