The U.S. government collected a little more than a billion dollars a day in corporate income taxes last year. The tax law signed by President Trump would cut that total to around $600 million a day. That ought to save big businesses a trillion dollars over the next 10 years.
What will they do with more money? Sen. Pat Toomey (R., Pa.) tells us, “This will result in more investment, more growth.” And more jobs, he assured us, meeting reporters on a trip through Montgomery County last week.
Which jobs? “Comcast said they will do $50 billion of capital expenditures over the next five years,” thanks to the tax cut and looser Federal Communications Commission internet rules, Toomey told us, citing a company statement last month. “That’s going to require probably tens of thousands of people. Contractors. A lot of jobs.”
I reminded the senator that my colleague Bob Fernandez reported Comcast laid off 500 salespeople and supervisors just before Christmas, and that Comcast was already on track for $10 billion a year in capital expenditures even before the tax cut. Installers tell us the big cable and phone companies are feeling pressure to spend more to boost speeds, as users cancel cable TV and switch to fast internet video.
Will service companies pass tax cuts to consumers in the form of lower rates? Subsidiaries of Exelon Corp., the dominant Philadelphia-area electric utility holding company, have said they may actually do that, at least in the politically sensitive Washington area. They haven’t yet posted projections for Philly-area users.
Customers of American Waterworks, the for-profit utility operator based in Voorhees, could see “little to no impact” on their bills, spokeswoman Maureen Duffy told me. Maybe the company will update pumps and pipes with the tax savings, instead of boosting rates to pay for that work.
And maybe Walmart or Costco will announce lower prices as a tax-cut bonus, suggested Doug Kugler, senior portfolio manager at the $8.3 billion-asset Chartwell Investment Partners of Berwyn.
How much of the corporate tax cuts will go to workers? Comcast, PNC Bank, American Airlines, Nationwide, and some other large employers have awarded workers a one-time $1,000 bonus tied to the tax cut. In Comcast’s case, that will cost the company about $100 million. Comcast paid $5.4 billion in income taxes last year. Lower rates could cut that by more than $2 billion a year. So workers should get almost 5 percent of the company’s first-year tax cut.
PNC, which employs 47,000, is going further, adding an extra $1,500 to workers’ retirement accounts. With the cash bonus, that equals almost 20 percent of the bank’s roughly $500 million tax savings, for a year.
“Our country’s new tax structure will have positive long-term benefits for American,” Doug Parker, CEO of the airline that dominates Philadelphia routes, said in a memo. American hasn’t actually been paying income taxes lately, because it lost so much money in earlier years. Still, with fatter margins, “we will be able to invest even more in aircraft and facilities,” Parker pledged.
“This is not an action we take lightly when balanced against the returns of our shareholders’/owners’ demand,” Parker added, feeling a need to explain that “taking care of those who take care of our customers” is an appropriate expense.
At Boeing, the jet maker that employs about 4,000 at its war helicopter factory in Ridley Park, the tax cut “is the single most important thing we can do to drive innovation, support quality jobs, and accelerate capital investment,” CEO Dennis Muilenburg said in a statement. Muilenburg pledged to spend an extra $100 million on charitable giving and $200 million on training and employee-facility upgrades.
As with American, Boeing’s past losses will complicate its tax payments over the next few years. A report by Pete Skibitski, stock analyst at Philadelphia-based Drexel Hamilton, suggests Boeing’s effective corporate tax rate won’t change much over the next few years. The company plans to say more about the tax cut’s impact when it reports 2017 income Jan. 31.
Whatever companies might spare for workers, charities, or consumers, much of the tax savings “will undoubtedly fall to the bottom line, increasing profits for the companies and their shareholders,” says Chartwell’s Kugler. Investors will enjoy “higher dividends and greater share repurchases.” Policymakers hope these hedge-fund managers, corporate insiders, and 401(k) plan retirees will eventually spend more on U.S. products and services, speeding growth.
Will workers pay for the tax cuts in other ways — with Congress trimming federal medical spending, leading to higher insurance costs, and cut Social Security? Toomey insisted the tax cuts will pay for themselves, while acknowledging Social Security should be changed for workers currently under 40. Congress is expected to debate medical and retirement spending this year.
Meantime, Toomey predicted many workers will better appreciate the tax cuts when personal tax rates drop “and pay goes up” for many Americans in the months ahead. “When people realize it actually is a tax cut, I think it’s going to be pretty popular.”