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February 12, 2019, 10:00 GMT
By Kathryn Kranhold
This story was originally published by The Center for Public Integrity, a non-profit, nonpartisan research organization for news in Washington, D.C..
SIDNEY, Ohio – Towards the end of last summer, managers of the global giant Emerson Electric Co. an employee meeting in its air conditioning and cooling plant in this provincial capital of 21,000 people west of Dayton. They had great news: every employee would have a & # 39; special contribution & # 39; of $ 1,000 for a 401 (k) pension account.
The reason for the generosity? The Tax Cuts and Jobs Act congressmen who had been hired and signed by President Donald Trump in late 2017, told Emerson's executives to Sidney's factory employees.
With the announcement, Emerson joined hundreds of companies-up to 750 at one count-that made similar statements to show that they share the wealth of a $ 150 billion cash windfall estimated to be in the first year of the newly-established tax. be received. law. On a bulletin board for employees, Emerson stated boldly that the contribution "confirms Emerson's core value to support our people and help them prepare for retirement!"
The payments from Emerson and other companies were a publicity bonus for the Trump administration and the Congress, then controlled by the republican. In 2017, when the tax bill on the Hill shifted, the legislators claimed the reduction they proposed in the corporate income tax rate to 21 percent, of 35 percent to the employees in the form of higher wages and bonuses. Emerson's action, and similar bonuses and wage increases, trumped by hundreds of companies such as AT & T Corp. and Walmart Corp., provided evidence that the Republicans were entitled to their economic theory.
Or did they do that? For many of the same companies, a fraction of the total number of US companies, executives have not yet announced a new round of bonuses or wage increases with the same fanfare – even though tax legislation remains billions for their bottom line. Several interest groups that followed the announcements said no new statements were issued. Americans for tax reform, a conservative anti-tax group run by Grover Norquist who bragged about "good news" in bonuses and income increases last year, has not reported any announcement for three months. Americans for tax reform did not respond to requests for comments.
At the Emerson Electric plant in Sydney, Ohio, managers announced last year that savings from the 2017 tax legislation enabled them to deposit a $ 1,000 bonus into each employee's 401 (k) retirement account. The company does not intend to give another bonus this year. Kathryn Kranhold for the Center for Public Integrity
Most American companies that have announced bonuses and wage increases are more like Emerson, who "has no plans to make an extra 401 (k) contribution this year," said a spokesperson for the company.
That is what made the promise of a higher compensation so far elusive. The Bureau of Labor Statistics reported nominal wages rose 3.2 percent in January year-on-year, and by less than one percent – three cents to $ 27.56 – month in the month. While some economists are enthusiastic about the improvement, other economists note that wages need to grow for a longer period to compensate for decades of stagnation. "The problem is not solved yet," said Seth Harris, deputy secretary of the Labor department in the Obama administration.
Bonuses have registered less impact, with only 2 cents per hour in the first nine months of 2018, according to Lawrence Mishel, former chairman of the Economic Policy Institute, a left-wing research group.
The increase was "imperceptible", wrote Mishel in December on EPI's blog. "What growth in bonuses has also occurred is not necessarily due to the tax cuts, rather than employers' efforts to recruit employees in a persistently low unemployment environment."
In all accounts, companies donated a large share of the tax windfall in the buyback of shares, a measure designed to at least temporarily increase share prices, benefiting the management and other large shareholders. And buying back, apparently as opposed to bonuses or wage increases, will certainly continue; Goldman Sachs estimates that in 2018 companies have spent a record $ 770 billion on repurchasing shares with their increasing stacks of post-tax profits and this amount will rise to $ 940 billion this year. Other chunks of austerity went to dividends or debt reduction. Companies pay for ongoing share buy-backs mainly by profit after tax that got a boost from the reductions in corporation tax.
A promise of & # 39; more money & # 39;
Back in Emerson, when managers unveiled the news at the factory in Sidney, the old employee Lerouise Rupert (32) said she was excited at first. "I think: this is going to be good." They told us: & # 39; We're going to give you a bonus of $ 1,000 & # 39; "Rupert said recently while she sat with her three children at a nearby Wendy's restaurant.
Then the Emerson managers explained the details. The bonus was not paid out in cash because "it would be heavily taxed", recalls Rupert, whose job is running from driving a forklift and loading the assembly line to building electrical cabinets. So instead they said, "We're going to put it in a 401 (k) for you."
The contribution had few tangible benefits for Rupert, who had an occupational pension but did not have a 401 (k) account at that time, and for many of her employees. Their real need is that money immediately pays bills, or in the case of Rupert at that time, the chance to buy gifts for her children instead of signing up for a local charity gift program.
"I was looking forward to this check for Christmas," she said.
Click here to read the Center for Public Integrity version of this story
Rupert's experience is a stark contrast to how Trump and Republican lawmakers sold tax legislation. "You will see a lot more money on your salary," Trump said a year ago at an event in Nashville, Tennessee. A few months earlier, Trumpand then – House Speaker Rep. Paul Ryan, R-Wis., Suggested that the tax legislation typical households would likely generate a wage increase of $ 4,000 per year, with wage reporting in the White House even exceeding $ 9,000 per year.
Manufacturing employees were particularly vocal, arguing that the lower tax rate for companies would not only increase wages, but would also enable their companies to become more competitive and to bring back jobs around the world. David Farr, chief executive of Emerson Electric and former chairman of the powerful National Association of Manufacturers, helped drive tax relief and insisted on a lower tax rate of 15 percent for corporations.
Lerouise Rupert, whose job at Emerson Electric runs from driving a forklift truck and loading the assembly line to building electrical cabinets, has tried to withdraw the money into her pension account, but has not gotten far with her questions. Courtesy of the Rupert family
Emerson, based in Ferguson, Missouri, employs approximately 87,500 people worldwide, with approximately 24,000 employees in North America.
In May last year, five months after the new law, Farr told Congress: "Tax reform helps strengthen communities, create new career opportunities and raise pay increases for the men and women of American manufacturing groups."
A spokeswoman from Emerson said that Farr was not available for an interview.
Emerson's tax rate fell to 17 percent in 2018, according to the annual filings with the Securities and Exchange Commission, and corporate executives estimate a 24 to 25 percent rate this year, which increases profits. Farr told investors in a presentation in August that the tax law allowed the company to raise wages and improve the health plan, parental leave and paid leave of the company.
But Emerson reported that it had received $ 189 million in tax savings, of which it had spent $ 24 million, less than 13 percent of 401 (k) bonus contributions – a payment that also provided financial benefits for the company. Emerson also spent $ 1 billion – more than 40 times the amount he spent on the pension premiums – in the 2018 fiscal year that bought back his own shares.
And for those on the ground, Emerson's generosity seems limited.
That is what employees say at Ridge Tools, a subsidiary of Emerson in Elyria, outside of Cleveland. The company has an impressive presence in the struggling city of 54,000, with its own water tower with the word "Ridgid", the brand name of the electrical tools that the company makes.
Several employees of Ridge Tool, who wanted to remain anonymous, told the Center that the reductions in corporation tax did not increase their salaries. They have received the same annual increase in their wages as in recent years: less than 3 percent. Emerson recently increased the vacation time to three weeks from two weeks for employees who were employed for at least five years, they said. Hourly wage at Emerson's Sidney factory, which makes Copeland Scroll products grow 3 percent per year under the Union contract. An Emerson spokesperson said that the company spends $ 3 million annually on improved benefits, but refused to provide details. The spokeswoman said the company offers "market-based wage increases".
Ridge Tool employees also received that $ 1,000 pension contribution and were not all disappointed. Joe Neudenbach, an old employee, said he was planning to withdraw the money immediately – at age 61 he can pay without penalty – to buy a new armchair to watch the Super Bowl. "The $ 1,000 was cool, I did not see it coming," said Neudenbach.
Nevertheless, the one-off bonuses and one-off 401 (k) contributions have been pledged on a large scale as public relations stunts that do not sustain financially, such as annual wage increases. Long time spans and pension expert J. Mark Iwry said: "It seems appropriate that employers share their tax savings with their employees."
Bonuses and layoffs
Some argue that the Tax Cuts and Jobs Act was indeed a stroke of luck for employees in 2018. The conservative Americans for the tax reform group kept a chain of corporate announcements in October and listed as many as 750 examples of wage increases, charitable donations, special bonuses , 401 (k) race hikes, company expansions, increases in benefits and discounts on utilities attributed to the Tax Cuts and Jobs Act. "
But shareholders have done much better than employees according to tax legislation. Companies spent $ 929 billion in share buybacks, compared to $ 7.1 billion in pay rises and bonuses, according to Americans for Tax Fairness, a left-wing nonprofit that tracked Fortune 1000 companies.
Another report from Just Capital, the nonprofit organization, which maintains the Russell 1000 index, which includes the largest US government companies, found that 145 companies in the index announced plans to spend the cash windfall, and only 6 percent of the spending was allocated to employees, "more than half of them take the form of one-off bonuses, as opposed to permanent increases or benefits."
Among the first companies to come out with bonuses and pay increases due to tax laws were Walmart and AT & T. On January 11, 2018, Walmart announced that it would award $ 1,000 one-off bonuses to eligible employees and raise the starting hourly wage to $ 11 per hour. On the same day, Walmart filed messages to dismiss thousands of employees. A spokesman for Walmart said the company currently has no plans for a company-wide bonus for 2019. He said the average total compensation and benefits for employees per hour are higher than $ 17.50 per hour.
Ridge Tools, a subsidiary of Emerson in Elyria, has an impressive presence in the struggling city of 54,000, with its own water tower containing the word "Ridgid", the brand name of the electric tools the company makes. Kathryn Kranhold for the Center for Public integrity
On December 20, 2017, two days before Trump signed the Tax Code, AT & T CEO Randall Stephenson announced that tax legislation would allow the company to grant one-time bonuses of $ 1,000 to each of its employees for an amount of $ 200 million – approximately 1% of the estimated $ 20.4 billion windfall that the company recorded in the fourth quarter of 2017. While AT & T handed out the bonuses, he was in the midst of firing thousands of employees.
A spokeswoman for AT & T said the company would not hand out a new bonus this year.
By this time last year, a number of companies, including The Walt Disney Co. and Southwest Airlines, announced that they would use part of the tax windfall to give one-off employee bonuses. Southwest said it would use $ 55 million of the $ 1.3 billion tax windfall on bonuses. At the same time, it spent $ 2 billion on redemptions in 2018. Disney received a $ 1.7 billion benefit and paid $ 125 million in employee bonuses – and $ 3.6 billion in share repurchases. None of the companies has announced a new round of bonuses. Southwest said it had no plans to give bonuses this year and Lowe did not respond to requests for comments. Disney referred the Center to its January 2018 announcement.
Will it work – later?
To translate the tax cuts into higher wages, the theory is that different factors need to be aligned. Republicans and companies argued that the tax cuts would lead to more investments in factories and machines. That would lead to more productive and more valuable employees, who would "pay the wages," said Mark Mazur, head of the nonpartisan Tax Policy Center in Washington. But to make that happen, "every link must work," he said.
Meanwhile, in Sidney, Rupert is still trying to collect her $ 1,000 pension contribution, which was the only down payment to her 401 (k) account because she had none when Emerson issued the bonuses last year.
Rupert said she was willing to pay the fine for an early admission, but she did not get far with her questions.
A frustrated Rupert said that the last time she checked her account, the balance was only $ 867, a likely victim of the stock market fluctuations.
The Center for Public Integrity is a non-profit, non-partisan research organization for news in Washington, D.C.