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Because there’s suddenly a bunch of money available from the tax cuts.

s3r3nity 8y ago
Don't know why you're getting down-voted - it's a reasonable hypothesis. Why wouldn't a corporation reinvest those tax benefits? I think that the likely culprit is a more competitive labor market in general, but there's no reason to outright reject the idea that the demand for labor could in part be driven by said tax cuts to a non-trivial extent.
- sykh 8y ago
  I didn't downvote but jeremyt's statement is without evidence. It's certainly plausible that the statement could be correct but there really isn't any evidence given to support it.
  - reaperducer 8y ago
    > jeremyt's statement is without evidence The news has been full of dozens (maybe hundreds by now) of large and small companies using the tax change to increase employee wages and benefits. While there's currently no specific press release linking Wal-mart's actions with the tax change, it certainly isn't beyond the realm of possibility (and HN-class conclusion jumping).
    - sykh 8y ago
      I guess I read different news than you. I’ve read that most of the money is going toward stock buybacks. The pressure on wages is coming from a tighter labor market. That’s what I’ve read but I don’t know enough to say one way or the other. https://www.marketwatch.com/story/now-we-know-where-the-tax-cut-is-going-share-buybacks-2018-02-22 https://www.marketwatch.com/story/now-we-know-where-the-tax-... http://money.cnn.com/2018/02/09/news/companies/tax-cut-bonuses-buybacks/index.html http://money.cnn.com/2018/02/09/news/companies/tax-cut-bonus...
      - reaperducer 8y ago
        You are correct that there have been stock buybacks, as well. But I'm not sure it counts as "most." First, of the companies that are doing stock buybacks, not all are doing only stock buybacks. Many are doing other things as well. Second, there's a whole great big world out there called "local news" where you'll see these stories that aren't covered by CNN, Marketwatch, CNBC, etc... Yes, some big companies are doing stock buybacks, but there's a lot more going on in the business world than the Fortune 500.
        sykh 8y ago
        Well from one of the articles I referenced: This follows a report by benefits consulting firm Aon Hewitt finding that 83% of large companies don’t expect the tax cut to boost salaries at all — just help pay for small bonuses companies like WalMart WMT, +1.98% and AT&T T, +0.70% gave workers, which reporters soon discovered were, themselves, skewed toward higher-paid, longer-tenured employees in many cases. However one feels about the issue my point still stands. Th comment that started this thread gave no supporting evidence for the claim and thus deserved to be downvoted. Also the article we are all nominally commenting on is about Walmart which is a Fortune 500 company. Is its tuition plan because of the Trump tax cuts?
      - deleted 8y ago
        [deleted]
    - pktgen 8y ago
      > The news has been full of dozens (maybe hundreds by now) of large and small companies using the tax change to increase employee wages and benefits. No, there have been dozens or hundreds of companies claiming that tax cuts were responsible for employee compensation increases. Many of those were one-time bonuses, but the tax cuts are ongoing. In some cases where the benefits were ongoing (like Walmart's hourly pay increase), you'll find that they tend to coincide with the overall trend of state minimum wage increases. This is just PR: they're getting ahead of the trend and trying to attribute it to tax cuts rather than other forces. Also, since employee compensation was tax-deductible even before the tax cut, taxes certainly weren't stopping companies from raising wages before the tax cut.
      - bduerst 8y ago
        Pretty much. Companies are using the tax cuts to signal goodwill to the market, but in reality the temporary increase in benefits is an expense coming from pre-tax income. The tax cuts are causing increased employee benefits is a red herring.
      - gowld 8y ago
        No, tax deductions are not tax credits. Suppose the company is targeting $100 net profit, and has $200 income available, before taxes and "bonus wages". At 20% tax rate, the company can pay $75 in deductible wages, plus ($(200-75)0.2) $25 in tax At 10% tax rate, the company can pay $89 in deductible wages, plus ($(200-89)0.1) = $11 in tax. Lower taxes enables higher wages.
        bduerst 8y ago
        That's not quite how it works. Publicly-traded companies don't reduce their net income using a tax cut, because their entire industry is getting the tax cut. The company's market price is tied to how their NI compares to the rest of their respective industry NI. Stock repurchases are filed on the balance sheet, post taxes, which is why companies take the increase in net income but then use the extra cash to buy back stock. The former keeps the company competitive and the latter increases the stock price.
      - 8y ago
    - s73v3r_ 8y ago
      "The news has been full of dozens (maybe hundreds by now) of large and small companies using the tax change to increase employee wages and benefits." Not really. There have been a lot of stories of companies offering one time bonuses to employees, despite the tax cuts being ongoing. And historically, windfalls like that have been used mainly to benefit the higher ups in the company, instead of the workers.
    - rconti 8y ago
      Lots of one-time bonuses. I haven't seen nearly as much (any?) about across the board wage increases. And it's not like Wal-Mart was hurting for money before. They could have raised pay before. Or they could have kept the tax cut money and paid it out to owners. So I'm not convinced. The tighter labor market makes a lot more sense.
- mbesto 8y ago
  > Why wouldn't a corporation reinvest those tax benefits Because they're historically linked to stock buybacks and M&A activity. The ROI is usually much more clear-cut. Does anyone have evidence that a retailer of Walmart's size investing in customer service and employees nets a positive ROI?
  - s3r3nity 8y ago
    I remember reading Howard Schultz's book "Onward" about his tenure as CEO of Starbucks, and how there was a significant return in their investments in employee education / benefits / stock incentives / better service, despite pushback from Wall Street. Idk if you'd consider the two the same scale (the market cap for Wal-Mart is probably 3x that of Starbucks if I recall) so maybe that's _some_ evidence? Though I agree evaluating/comparing the ROI on the two is probably not the cleanest analysis in the world.
komali2 8y ago
And as the federal government works to gut healthcare, Walmart is reaping good pr by working to make up the difference.
pktgen 8y ago
Employee compensation (wages and benefits) is and was tax-deductible.
- bzbarsky 8y ago
  Yes, but so what? A simple exercise: say you have a small business. Your tax rate is 35%, gross revenue is 200k, tax-deductible expenses are 100k (1 or _maybe_ two employees). We'll assume a C corporation, just for illustration purposes and that you care about the after-tax profit it generates. In practice for something this small you would probably just pay yourself a salary and be done with it... Anyway, you have 100k taxable income, and 65k after-tax profit. If you paid your employees more, you would have less after-tax profit, because your tax rate is not 100%. Now say the tax rate drops to 21% (this is the cut that happened) and you give your employees a 10% raise. Now you have 110k expenses, 90k taxable income, 71.1k after-tax profit. So a tax cut in this situation does in fact allow an employer to both have more after-tax profit _and_ give raises to employees at the same time. Now we can have a discussion about what government services the employees and the employer won't get as a result of the tax cut, of course. That needs to be accounted for too, in the grand scheme of things.
  - tracker1 8y ago
    That 21% tax rate relies on paying employees more?
    - bzbarsky 8y ago
      > That 21% tax rate relies on paying employees more? I'm not sure what you're asking. The 35 -> 21 change is the actual corporate tax rate change that happened end of last year in the US. You don't _have_ to pay your employees more to be taxed at the 21% rate. But at the new tax rate you _can_ pay your employees more and till make more of a profit. So in the end the whole question is where the money that would have been paid in taxes goes instead. It could be going to stock buybacks, dividends, investment in the company, raises for employees, or just sitting in the company bank account. In real life the answer is probably "all of the above" and the proportions vary. Again, I'm not sure whether I answered your question, because I'm not sure what you're asking.
phil248 8y ago
Or because there's finally a competitive labor market due to 7 or so years of declining unemployment rates.
- taysic 8y ago
  They work together - tax cuts made the labor market even more competitive
  - ticviking 8y ago
    Funny what freeing up capital to engage in a bidding war on labor when unemployment is low can do.

Don't know why you're getting down-voted - it's a reasonable hypothesis. Why wouldn't a corporation reinvest those tax benefits? I think that the likely culprit is a more competitive labor market in general, but there's no reason to outright reject the idea that the demand for labor could in part be driven by said tax cuts to a non-trivial extent.

sykh 8y ago
I didn't downvote but jeremyt's statement is without evidence. It's certainly plausible that the statement could be correct but there really isn't any evidence given to support it.
- reaperducer 8y ago
  > jeremyt's statement is without evidence The news has been full of dozens (maybe hundreds by now) of large and small companies using the tax change to increase employee wages and benefits. While there's currently no specific press release linking Wal-mart's actions with the tax change, it certainly isn't beyond the realm of possibility (and HN-class conclusion jumping).
  - sykh 8y ago
    I guess I read different news than you. I’ve read that most of the money is going toward stock buybacks. The pressure on wages is coming from a tighter labor market. That’s what I’ve read but I don’t know enough to say one way or the other. https://www.marketwatch.com/story/now-we-know-where-the-tax-cut-is-going-share-buybacks-2018-02-22 https://www.marketwatch.com/story/now-we-know-where-the-tax-... http://money.cnn.com/2018/02/09/news/companies/tax-cut-bonuses-buybacks/index.html http://money.cnn.com/2018/02/09/news/companies/tax-cut-bonus...
    - reaperducer 8y ago
      You are correct that there have been stock buybacks, as well. But I'm not sure it counts as "most." First, of the companies that are doing stock buybacks, not all are doing only stock buybacks. Many are doing other things as well. Second, there's a whole great big world out there called "local news" where you'll see these stories that aren't covered by CNN, Marketwatch, CNBC, etc... Yes, some big companies are doing stock buybacks, but there's a lot more going on in the business world than the Fortune 500.
      - sykh 8y ago
        Well from one of the articles I referenced: This follows a report by benefits consulting firm Aon Hewitt finding that 83% of large companies don’t expect the tax cut to boost salaries at all — just help pay for small bonuses companies like WalMart WMT, +1.98% and AT&T T, +0.70% gave workers, which reporters soon discovered were, themselves, skewed toward higher-paid, longer-tenured employees in many cases. However one feels about the issue my point still stands. Th comment that started this thread gave no supporting evidence for the claim and thus deserved to be downvoted. Also the article we are all nominally commenting on is about Walmart which is a Fortune 500 company. Is its tuition plan because of the Trump tax cuts?
    - deleted 8y ago
      [deleted]
  - pktgen 8y ago
    > The news has been full of dozens (maybe hundreds by now) of large and small companies using the tax change to increase employee wages and benefits. No, there have been dozens or hundreds of companies claiming that tax cuts were responsible for employee compensation increases. Many of those were one-time bonuses, but the tax cuts are ongoing. In some cases where the benefits were ongoing (like Walmart's hourly pay increase), you'll find that they tend to coincide with the overall trend of state minimum wage increases. This is just PR: they're getting ahead of the trend and trying to attribute it to tax cuts rather than other forces. Also, since employee compensation was tax-deductible even before the tax cut, taxes certainly weren't stopping companies from raising wages before the tax cut.
    - bduerst 8y ago
      Pretty much. Companies are using the tax cuts to signal goodwill to the market, but in reality the temporary increase in benefits is an expense coming from pre-tax income. The tax cuts are causing increased employee benefits is a red herring.
    - gowld 8y ago
      No, tax deductions are not tax credits. Suppose the company is targeting $100 net profit, and has $200 income available, before taxes and "bonus wages". At 20% tax rate, the company can pay $75 in deductible wages, plus ($(200-75)0.2) $25 in tax At 10% tax rate, the company can pay $89 in deductible wages, plus ($(200-89)0.1) = $11 in tax. Lower taxes enables higher wages.
      - bduerst 8y ago
        That's not quite how it works. Publicly-traded companies don't reduce their net income using a tax cut, because their entire industry is getting the tax cut. The company's market price is tied to how their NI compares to the rest of their respective industry NI. Stock repurchases are filed on the balance sheet, post taxes, which is why companies take the increase in net income but then use the extra cash to buy back stock. The former keeps the company competitive and the latter increases the stock price.
    - 8y ago
  - s73v3r_ 8y ago
    "The news has been full of dozens (maybe hundreds by now) of large and small companies using the tax change to increase employee wages and benefits." Not really. There have been a lot of stories of companies offering one time bonuses to employees, despite the tax cuts being ongoing. And historically, windfalls like that have been used mainly to benefit the higher ups in the company, instead of the workers.
  - rconti 8y ago
    Lots of one-time bonuses. I haven't seen nearly as much (any?) about across the board wage increases. And it's not like Wal-Mart was hurting for money before. They could have raised pay before. Or they could have kept the tax cut money and paid it out to owners. So I'm not convinced. The tighter labor market makes a lot more sense.
mbesto 8y ago
> Why wouldn't a corporation reinvest those tax benefits Because they're historically linked to stock buybacks and M&A activity. The ROI is usually much more clear-cut. Does anyone have evidence that a retailer of Walmart's size investing in customer service and employees nets a positive ROI?
- s3r3nity 8y ago
  I remember reading Howard Schultz's book "Onward" about his tenure as CEO of Starbucks, and how there was a significant return in their investments in employee education / benefits / stock incentives / better service, despite pushback from Wall Street. Idk if you'd consider the two the same scale (the market cap for Wal-Mart is probably 3x that of Starbucks if I recall) so maybe that's _some_ evidence? Though I agree evaluating/comparing the ROI on the two is probably not the cleanest analysis in the world.

komali2 8y ago

And as the federal government works to gut healthcare, Walmart is reaping good pr by working to make up the difference.

pktgen 8y ago

Employee compensation (wages and benefits) is and was tax-deductible.

bzbarsky 8y ago
Yes, but so what? A simple exercise: say you have a small business. Your tax rate is 35%, gross revenue is 200k, tax-deductible expenses are 100k (1 or _maybe_ two employees). We'll assume a C corporation, just for illustration purposes and that you care about the after-tax profit it generates. In practice for something this small you would probably just pay yourself a salary and be done with it... Anyway, you have 100k taxable income, and 65k after-tax profit. If you paid your employees more, you would have less after-tax profit, because your tax rate is not 100%. Now say the tax rate drops to 21% (this is the cut that happened) and you give your employees a 10% raise. Now you have 110k expenses, 90k taxable income, 71.1k after-tax profit. So a tax cut in this situation does in fact allow an employer to both have more after-tax profit _and_ give raises to employees at the same time. Now we can have a discussion about what government services the employees and the employer won't get as a result of the tax cut, of course. That needs to be accounted for too, in the grand scheme of things.
- tracker1 8y ago
  That 21% tax rate relies on paying employees more?
  - bzbarsky 8y ago
    > That 21% tax rate relies on paying employees more? I'm not sure what you're asking. The 35 -> 21 change is the actual corporate tax rate change that happened end of last year in the US. You don't _have_ to pay your employees more to be taxed at the 21% rate. But at the new tax rate you _can_ pay your employees more and till make more of a profit. So in the end the whole question is where the money that would have been paid in taxes goes instead. It could be going to stock buybacks, dividends, investment in the company, raises for employees, or just sitting in the company bank account. In real life the answer is probably "all of the above" and the proportions vary. Again, I'm not sure whether I answered your question, because I'm not sure what you're asking.

phil248 8y ago

Or because there's finally a competitive labor market due to 7 or so years of declining unemployment rates.

taysic 8y ago
They work together - tax cuts made the labor market even more competitive
- ticviking 8y ago
  Funny what freeing up capital to engage in a bidding war on labor when unemployment is low can do.