Updated: How companies have used the tax cut savings
Bottom Line: On Friday I cited a story in the Sun Sentinel that was heavily conflicted. It correctly pointed out that wages were rising at their fastest pace in many years, and that wages in Florida were rising faster than the national average – however it also incorrectly stated that wages weren’t rising but it could soon change (? It was odd). Another talking point cited, that’s false, is the notion that companies have used a majority of money saved by the tax cuts on dividends payments and stock buy backs.
I figured it was time to update the stories I brought you a few months ago regarding what’s really happening. CNBC has a CFO Council they routinely use to determine what's going on inside of America's companies. Over 70% of all companies have taken action they wouldn't have taken already this year due to tax reform. Here’s what’s happened specifically with savings from the Tax Cut and Jobs Act.
- 20% - Bonuses
- 20% - Debt reduction
- 15% - employee raises
- 15% - share buybacks
- 10% - upgraded software
- 5% - upgraded equipment
- 5% - dividend payout/increase
Again, no apologies needed for stock buybacks and dividend increases because that’s good for the economy and the 52% of Americans who own stocks, but they aren’t even close to being the top go to for companies, with their tax savings. Only 20% of the savings combined has gone to buybacks and dividends while 35% of the savings has gone directly to employees already. It also makes sense that many companies are prioritizing debt reduction in this environment with rising interest rates. Lower debt levels should also help create improved stability for employees and investors the next time we’re faced with negative adversity in the economy.
Where much of the false reporting is derived, is by simply including all stock buyback and dividend activity companies have undertaken this year (which is a planned strategy of many companies) rather than just the change/impact due to tax savings. Two sides to stories, one side to facts and employees have directly been the biggest beneficiaries of the corporate action taken with tax savings in 2018.