Letter to the Editor

Tax cut's implications

Tuesday, March 19, 2019

On Dec. 22, 2017 President Trump signed the Tax Cuts and Jobs Act. Although it has only been in effect for a little over a year, it is now possible to ascertain the direction of its impact.

One of the major provisions in this law was reducing the corporate tax rate from 35 percent to 21 percent. A leading argument used to support this action was the contention that corporations would take their increased post tax profits and use them in a big way for additional investments, increasing production, and hiring more workers. This was supposed to give ordinary citizens increased wages which they could use to improve their lives.

To date, the corporations have used the additional revenue in the following ways:

* 57 percent for stock buy backs.

* 7 percent went to increase wages for employees.

* 10 percent for hiring new workers.

* 6 percent for investment in the company's products.

This buyback boom has been terrific news for shareholders and corporate executives. The repurchase of these large amounts of stock has provided the persistent demand that has contributed significantly to the rising stock market. Buybacks also artificially inflate a measure of profitability known as earnings per share.

Consequently the tax cut has been good news for corporate investors, but not so good for their employees. Republican Sen. Marco Rubio is arguing for a new proposal which would eliminate the preferential tax treatment of share repurchases. It should be taken seriously.

JOHN PIEPHO, Cape Girardeau