The Trump tax cuts provide a unique opportunity for companies to boost pay without getting punished by Wall Street. Big companies are just now beginning to estimate the net effects of the tax cuts, and so far, the forecast is for a roughly 8% jump in after-tax profits in 2018, according to Credit Suisse. That?s a big boost, and it gives CEOs plenty of wiggle room to address labor shortages and concerns about workers bolting for better-paying jobs.
Even so, companies are being stingier than some of the cheerful PR suggests. A Yahoo Finance compilation of all the recently announced moves shows that most companies are offering one-time bonuses rather than permanent raises. That?s a lot cheaper than across-the-board pay hikes that permanently raise labor costs. ?The bonuses are the most suspect because that?s a one-time hit, likely made up in the first year,? says David Nelson, chief strategist for investing firm Belpointe. ?It?s different when you raise wages. You can?t take it back.?
Companies may also be giving workers a lift now, because they see moves coming later this year, such as stock buybacks, that will primarily benefit shareholders. So bonuses and raises could be an effort by companies to inoculate themselves from criticism that their response to the tax cuts primarily benefits the wealthy. ?We do not expect corporate tax cuts to lead to a meaningful boost in business investment,? Moody?s says in a recent report. The debt-rating firm expects companies to ?prioritize activities such as share buybacks, M&A and paying down existing debt? instead.
