Comcast and AT&T Employees and Investors Will Celebrate This Christmas
It’s going to be a nice Christmas if you happen to work for Comcast Corporation (NASDAQ:CMCSA) or AT&T Inc. (NYSE:T). But it may not be such a good year for most people who use the Internet in the United States. Comcast has decided to add $1,000 to its employees’ paychecks in December to celebrate the Federal Communication Commission’s (FCC) termination of net neutrality. (Source: “Comcast is giving its employees $1,000 bonuses because net neutrality is dead,” The Verge, December 20, 2017.)
AT&T employees can also look forward to a nice bonus. AT&T has pledged to add $1,000 to its employees’ paychecks to mark the signing into law of the Republican tax bill and the end of net neutrality. The company, which also said it would invest over $1.0 billion in 2018 in infrastructure and other upgrades, may also be trying to impress President Trump. (Source: “AT&T Boss Randall Stephenson: “We’re Prepared To Make Concessions” To DOJ–But Hands Off CNN,” Deadline Hollywood, November 29, 2017.)
Trump praised AT&T’s plans. But this has raised suspicion that the latter company’s CEO, Randall Stephenson, may be trying to “accelerate” or “facilitate” the approval of a controversial merger with Time Warner Inc (NYSE:TWX). (Source: “Trump praises tax-related AT&T bonuses amid merger dispute,” Politico, December 20, 2017.)
The timing of the move is suspect.
Trump Likes Praise and Corporations Are Happy to Oblige
Having understood that Trump likes to be praised, AT&T and Comcast bosses have gone after his heart. They are making grand gestures that clearly send a message loud and clear: “Thanks, President Trump! You are right and Obama was wrong!” Trump now has something solid to show his voters and, even more so, his critics.
Of course, the tax reform has just passed. Some companies that stand to make billions are paying their respects. The end of net neutrality is intended to benefit the corporate side of the Internet rather than its users. If you’re not an AT&T or Comcast employee—or investor—there’s nothing in it for you. Granted, many businesses are offering bonuses to employees to celebrate the corporate tax cut, including Boeing Co (NYSE:BA) and Wells Fargo & Co (NYSE:WFC). More may join them over the next few days. (Source: “AT&T, Comcast, Wells Fargo promise bonuses or pay hikes once tax cut bill passes,” USA Today, December 20, 2017.)
Yet, it will take years to determine its effectiveness. Indeed, it’s easy to make tax cuts. It’s not as easy to pay for them, especially when you plan to fund a major infrastructure overhaul. Many Americans will feel as if their taxes will be lower. Still, middle- and lower-class Americans won’t be getting much of a gain in their paychecks. On average, those who are rich already will get richer.
The bulk of the tax reform—which is a much-diluted version of what Trump had initially promised—aims to cut corporate rates from 35% to 21%, as of 2018. Considering that many corporations have several deductions available to them, the benefits will be even higher. If you belong to the middle class that Trump boasted helping, you may gain some $1,600 at the end of 2018. And there’s no guarantee that the tax break will last beyond 2025. (Source: “The Final Tax Bill Falls Far Short Of President Trump’s Campaign Promises,” The Tax Policy Center, December 18, 2017.)
Overall, the perception will be that the already alarming income gap will become even wider.
Corporations and the Already Rich Stand to Gain the Most
The corporations handing over bonuses are hardly being generous. They will gain several million dollars this year, while the few “lucky” ones will get meager bonuses that, given the costs of living—not to mention housing—won’t last until the end of the present holiday season. Meanwhile, there are no guarantees that American corporations will use the tax break to hire more people.
The so-called tax cuts will also raise the several long-term risks, including a massive market crash. The tax cut could add some $1.5 trillion to the current debt. This means that the Federal Reserve won’t be able to raise interest rates, fueling the casino-like stock markets in which only 50% of Americans are invested. Republicans argue that the taxes will favor growth, which will generate fresh tax revenues.
But will it? Given the prevalence of the stock market and the interests of investors, the tax cuts will be milked to help boost market capitalization rather than tax revenue. It will also boost political partisanship, driving a deeper wedge between Americans and classes. Unlike the last major tax reform, 31 years ago, when Ronald Reagan was president, no Democrat voted “Yes” this time. In the shorter term, the tax reform has reopened Congress to deliberate over a potential government shutdown.
It seems that Trump did not study history. In the words of Mark Twain, history doesn’t repeat itself, but it often rhymes. The tax reform has enough controversy built into it to provoke the kind of class warfare that prompted revolutions in the past. Revolutions from those in Ancient Rome, to 18th-century France, 1917 Russia, 1979 Iran, or the so-called Arab Spring always have a large income disparity between the majority of the population and the minority. Rather than congratulate themselves with scanty bonuses, American corporate leaders should be identifying the fire exits.