Nine major publicly traded corporations that are funders of the American Legislative Exchange Council (ALEC) just reported earnings from the first quarter of 2018. Trump’s recent massive corporate tax cuts were sold as a job creation mechanism, but rather than creating jobs, all nine companies reported layoffs that have recently taken place or are planned for 2018.
At ALEC, global corporations and state politicians vote behind closed doors to rewrite state laws that govern your rights. These so-called “model bills” reach into almost every area of American life and often directly benefit the corporations writing or voting on the legislation.
The federal Tax Cuts and Jobs Act of 2017 — pushed hard by the Koch Caucus in Congress — lowered the federal income tax rate from 35 percent to 21 percent, and the Trump Administration promised that the cuts would cause corporations to invest, expand, and hire new workers, as well as pay bonuses or increase wages.
The Center for Media and Democracy’s analysis of nine companies that are major players in ALEC shows that, even with the tax cut, those corporations have laid off or will lay off employees. Comcast, for example, said it will save $128 million from the tax cut and announced 500 layoffs. Caterpillar reported that it will pay 9 percent less in income taxes, but also announced it is closing facilities.
Eli Lilly reported that it lowered its corporate income tax rate by almost one-third, but announced 3,500 layoffs at the end of 2017, layoffs that are still taking place. Energy companies are expected to be major beneficiaries of the tax cut, but two ALEC energy companies, Chevron and Marathon Petroleum, reported large tax savings as well as layoffs for the year.
The Center for Media and Democracy did not cherry-pick companies to find those that announced both tax savings and layoffs. Excluded were coal companies, for example, such as ALEC members Dominion Resources and Peabody Energy, which are downsizing as coal sales continue to decline. Nor did CMD choose companies that saved money on income taxes because they lost money. The nine companies analyzed below all made large profits.
What the companies did with the profits was a corporate choice. In most cases companies bought back shares, a practice that then increases the earnings per share and the dividends paid to shareholders. The boards of these companies vote for the share repurchases, and directors that own large numbers of shares greatly benefit from this repurchasing.
Warren Buffett’s Berkshire Hathaway has already made an extra $29 billion from the tax cut. Most of that is because his companies boosted dividends by repurchasing shares. Berkshire Hathaway owns the Burlington Northern Santa Fe Railroad, an ALEC company.
CMD has written that ALEC member corporations laid off 12,000 workers in 2017.
Hundreds of billions of dollars in tax savings has not slowed the firings. And economist Dean Baker tells us the firms are failing to invest these tax dollars to expand their operations as promised.
Chevron: Chevron, like most oil companies, greatly benefited from the tax cut. Its earnings have grown, and it has credited the tax cut as one reason for the increase.
So far, Chevron has announced 300 layoffs for this year.
The layoffs are partly due to a decision by the company to repurchase shares, thus boosting the earnings per share for wealthy shareholders. “There’s still little evidence that the corporate tax benefits are finding their way to employees,” the Houston Chronicle reports.
Marathon: Marathon Petroleum increased its earnings in the first quarter and its income taxes declined by almost half. The company, based in Houston, made share repurchases of $1.33 billion, which, like Chevron, reflects a decision to increase dividends rather than expand operations and hiring (or invest in renewable energy).
The Houston Chronicle says that, “Houston energy companies have reported at least $20 billion in tax benefits from the recently enacted tax overhaul, but whatever savings the firms realize will likely go to well-heeled investors rather than support the local economy through hiring, pay raises and expansions.”
Despite a tax-cut benefit and increased earnings Marathon has announced layoffs of employees.
Comcast: According to a company press release,”1st quarter 2018 net income attributable to Comcast Corporation includes a $128 million net income tax benefit because of federal tax legislation enacted in 2018.”
Before Christmas Comcast laid off 500 salespeople, even though it anticipated a tax savings in the first quarter 2018.
Verizon: Verizon paid $1.39 billion in income taxes in the first quarter 2018, compared to $1.63 billion for the comparable period in 2017. It is not known, based on data provided by the company, how much of that tax savings of $241 million is a result of the new tax cut bill, but Verizon earned substantially more in this year’s first quarter; the taxes should otherwise have been higher, not lower. Company earnings in the first quarter were 23 percent higher than the first three months of 2017.
Verizon is closing some of it calling centers, resulting in the layoff of 3,000 employees.
Pfizer: Pfizer reported a quarterly earnings increase of 23 percent from one year ago, thanks in part to a much lower 2018 tax rate.
Pfizer has abandoned efforts to find drugs related to treating Alzheimer’s and is set to lay off 300 employees.
Times Warner: The company paid substantially lower income taxes in the first quarter 2018 versus first quarter 2017. The company does not report how much was from the tax cut legislation or other factors, except to say it benefited from the cut. In the first quarter of 2018, Times Warner increased its revenue by $261 million and its profit by 15 percent.
Times Warner has announced layoffs at many of its properties, including CNN and Turner Broadcasting, but larger layoffs are expected if its merger with AT&T is approved by a case pending in federal court.
Eli Lilly: Pharmaceutical firm Eli Lilly, a sponsor of ALEC’s 2017 membership meeting, laid off 3,500 workers in the fourth quarter of 2017 (2,300 of whom took a buyout).
In its press release announcing its first quarter 2018 earnings, Lilly told investors, “The effective tax rate was 15.9 percent in the first quarter of 2018, compared with 21.2 percent in the first quarter of 2017. The lower effective tax rate for the first quarter of 2018 was primarily due to U.S. tax reform enacted in December 2017…”
Caterpillar: Caterpillar reported an income tax decline of 9 percent in the first quarter 2018 relative to the same period in 2017.
Caterpillar is expected to close some facilities, with an estimate of 800 layoffs.
Altria: Tobacco giant Altria reported a 30 percent increase in earnings per share for the first quarter 2018 relative to the same period one year ago. The company says, “[I]n the first quarter we benefited from a lower tax rate as a result of Federal income tax reform, something for which we long advocated.” Altria repurchased $513 million in shares.
Altria has announced layoffs in Virginia.