Last September, Crikey first reported an interesting study in the US that examined what large corporations had done with windfall profits: they’d cut staff and used the windfalls for share buybacks that boosted the share price of the companies (and increased executive bonuses).
This was actual evidence of what companies might do with the tax cuts Donald Trump had promised them — and what companies would do with similar tax cuts in Australia — when actual evidence from tax cut proponents was impossible to find. But we never thought the study would be backed up by companies themselves actually admitting that they would do this. We were wrong; US CEOs began saying exactly that even before the tax cuts were passed by Congress late last year.
Overnight, another major US CEO has said he’ll be using the tax cut for share buybacks. This is Bank of America CEO Brian Moynihan to investors less than 24 hours ago on what BoA will do with the Trump tax cut:
Most of the benefits will fall to the bottom line and be used to return to shareholders.
And we’re not talking about a small sum. According to Reuters, “the lender expects its effective tax rate this year to be around 20 percent, 9 percentage points lower than 2017”. That’s on earnings of over US$5 billion.
So who will be the first Australian CEO to admit that if they ever get the tax cut Malcolm Turnbull is desperate to give them, they’ll blow it goosing their share price? Or do local CEOs not have the honesty of their US counterparts? Perhaps some investment analysts should put the question to CEOs on the next earnings conference call?
Sadly reports such as this won’t make a scrap of difference. The ideological stance of this government is not affected by facts (are any ‘ideologies’ based on ‘facts’) and today ‘facts’ are easily swatted away as misinterpretations aka ‘fake news’. Remember how Honest John proclaimed that he didn’t need science when he had his instincts? So who need economics or facts when you have an ideology that supports a whacky idea such as trickle down economics? Nothing changes.
Hi Bernard, genuine question without agenda. You say that the tax windfall will be use to buy back shares instead of being invested. The cash being returned simply goes back to the owners of the firm, i.e. asset managers, who will have to allocate somewhere, i.e. invest in something else. Is this better or worse than BoA investing in something themselves? Completely agree with you on mechanics of boosting the share price and enhancing personal/executive gain.
On a side note, might be worth comparing this to what Apple are doing with their windfall. Maybe it’s simply a case of BoA having nothing worthwhile to spend the cash on.
Anyway, thanks for this and all your thoughtful writing in general!
It has often been pointed out that the world (sic!) produces enough “stuff”, food, toys & services for everyone to live a decent life – and that was before robotics.
Similarly, if just the money zipping through the ether in any given nanosecond breeding by the miracle of usury were actually to land somewhere and need to be spent, on some of the aforementioned stuff, it would be found that it is several multiples of the amount of value inherent in … the aforesaid.
Ponzi was a prophet.