President Trump, trumpeting the new tax law that took effect this year, promised that the massive corporate tax cut from 35% down to 21%, on top of the “tax holiday” on approximately $2.1 trillion of corporate profits held tax-free overseas would result in increased investment in factories, workers and wages, and would invigorate the American economy.
The numbers are now in — only 4% of workers are getting salary increases or bonuses. 80% of the tax windfall is going toward stock buybacks, in which corporations use the cash on hand to buy back their own stock.¹ Because this removes stock from the open market, it creates a scarcity value and drives up the share price.
This is good for the senior executives of these corporations, who tend to be big owners of their companies’ stock. It also benefits the 10% wealthiest Americans who own 84% of all stocks.² However, the bottom 40% of Americans (125 million people) own nearly nothing in stocks, and continue to balance the rent, the grocery bill, and the rising cost of gas and electricity.
Until the early 1980s, stock buybacks were considered illegal because they were an artificial way to manipulate share prices.³ They were an easy way to create phantom profits, compared to hiring workers, spending on research and development, and building new plants.
Corporations tend to put share value first, ahead of customers, employees, the community or public interest, but wield control over the American economy and politics. In order to understand how corporations got this powerful, we have to go back to the end of the Civil War. The 14th Amendment was passed to protect fundamental human rights. It granted emancipated slaves full citizenship, and protection of life, liberty, property, and due process of law. However, using lies and a twisted interpretation of the Amendment, railroad barons pushed Congress to grant corporations the status of “persons.” Corporations used the shelter of the 14th Amendment to overturn economic regulations, child-labor laws, zoning laws, and fair wage laws.
150 years later, “corporate personhood” has snowballed into an overturn of the democratic system. In the last 4 years, the Supreme Court dramatically expanded corporate rights, and in 2010 ruled that corporations have full rights to spend money as they wish in candidate elections — federal, state and local. It unleased a flood of campaign cash and corporate influence over elections, the budget and public policy. Corporations play it both ways — they reap the benefits of “personhood,” but unlike real people they can keep and grow their assets in perpetuity, and are not subject to the laws of inheritance.
Much of what Americans perceive to be wrong with America has roots in this ideology — rising income and asset inequality, swings from boom to bust, unemployment, crumbling infrastructure, and unaffordable education.
Corporate stock buybacks are just one manifestation of this ethic. When corporations’ primary role is to boost short-term shareholder value at the expense of everything else, what’s lost is a long-term investment in the future. To get the largest “return on investment,” corporations want the biggest return from the smallest investment. Costly new factories are a no-no. Investing in education for the surrounding community is irrelevant. Hiring expensive workers who receive health and retirement benefits is counter-intuitive. Corporations as “job creators” is a myth — creating shareholder value and creating good jobs is incompatible. Stock buybacks, though, are a no-brainer — they create profits out of thin air.
What does this mean for the American Dream? Wages are stuck. College degrees are out of reach. Medical costs are skyrocketing. A recent study by a team of the nation’s leading economists at Stanford, Harvard and the University of California Berkeley reported that for the first time, it’s extremely unlikely that this generation of American children will earn more than their parents, after adjusting for inflation. Much of the anger fueling last year’s presidential election stemmed directly from the concerns of Americans who feel they are losing ground economically. Corporations pumped over $2 billion into the 2017 elections⁵, and found scapegoats to target — immigrants, people of color, unions, international trade agreements, and workers in other countries.
One positive aspect to the current administration is that many Americans have received an education about the political system. They didn’t receive the tax cuts that they expected. Jobs that were promised did not materialize. The vulnerability of the electoral process to social manipulation became exposed. The swamp overflowed. The coming mid-term elections may be an opportunity for an energized electorate to take back the democratic system, and roll back a fake prosperity that only benefits a few at the top.
¹ Americans for Tax Fairness, 4/9/2018
² CNN Money, 2/16/2018
³ New York Times, 2/26/2018
⁴ Washington Post, 12/8/2016
⁵ Fortune, 3/8/2017