COLUMBIA, Mo. — According to a new report from Politico, the Republican tax bill has set off a record level of “eye-popping” payouts for corporate executives. Politico also reports that, at the same time executives are getting richer, there is “evidence of companies scaling back planned capital expenditures over fears of a trade war.” Meanwhile, a Bloomberg analysis last week found that the Republican tax plan has done nothing to boost wages for workers.
As a reminder, Josh Hawley continues to be a vocal supporter of the Republican tax bill — despite its failure to deliver for Missouri families.
Some of the biggest winners from President Donald Trump’s new tax law are corporate executives who have reaped gains as their companies buy back a record amount of stock, a practice that rewards shareholders by boosting the value of existing shares.
A POLITICO review of data disclosed in SEC filings shows the executives, who often receive most of their compensation in stock, have been profiting handsomely by selling shares since Trump signed the law on Dec. 22 and slashed corporate tax rates to 21 percent. That trend is likely to increase as Wall Street analysts expect buyback activity to accelerate in the coming weeks.
“It is going to be a parade of eye-popping numbers,” said Pat McGurn, the head of strategic research and analysis at Institutional Shareholder Services, a shareholder advisory firm.
That could undercut the political messaging value of the tax cuts in the Republican campaign to maintain control of Congress in the midterm elections.
…The insider sales feed 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.
…Following 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.
Year to date, buybacks have doubled from the same period a year ago, Merrill Lynch said in a July 24 report, citing its clients’ trading activity.
…The correlation between corporate buybacks and insider sales is clear, according to SEC Commissioner Robert Jackson, a Democrat. He 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.
The link between the tax cuts and big executive payouts, fueled by buybacks, is also plain, according to one institutional research firm.
“Stock buyback announcements in the U.S. have swelled to the highest levels on record in the wake of last year’s corporate tax cut,” said TrimTabs Investment Research in a July 10 report. “Corporate America’s actions suggest that most of the benefits of the corporate tax cut will flow to investors in general and top corporate executives in particular.”
…The Federal Reserve has cited anecdotal evidence of companies scaling back planned capital expenditures over fears of a trade war.
…“What did companies do with their cash?” said the Morgan Stanley analysis. “In short, a large increase in stock buybacks was the biggest change” in the first quarter of this year from the last quarter of 2017.
…In a speech last month, the SEC’s Jackson said, “There is clear evidence that a substantial number of corporate executives today use buybacks as a chance to cash out the shares of the company they received as executive pay.
“In fact, twice as many companies have insiders selling in the eight days after a buyback announcement as sell on an ordinary day,” he said.