For Corporations, The Trump Tax Cuts Were A Bonanza For Stock Buybacks

Gage Skidmore/CC BY-SA 2.0/Flickr

Only 4 percent of Trump’s massive corporate tax cut went to creating new jobs.

Trump’s new 2017 tax law did not persuade corporations to increase hiring or job creation. Only "4% of business economists say their companies accelerated hiring because of the tax overhaul," according to CNN.

More, only 10% of business economists said that their firms increased investments such as building factories or buying equipment because of the law, according to a survey from the National Association for Business Economics.

Trump’s tax law has clearly not lived up to his fervent promotion. More, the Congressional Budget Office predicts that the tax overhaul will add $1.9 trillion to the federal budget deficit throughout the next decade.

"So far, the investment response has been modest and underwhelming," said Owen Zidar, an economics and public affairs professor at Princeton University. "The idea there would be an enormous boom was pretty optimistic."

Government data showed that business investment increased materially in Q1 of 2018, but the growth did not last through the remainder of the year. For the year, business investment rose less than 10%.

Instead of investing the tax savings in business activities, companies started buying back their shares in droves. 2018 saw stock buyback activity rise to a record $1.04 trillion, a 71% increase from 2017.

These aggressive buyback programs have helped stabilize the U.S. stock market over the last year amidst rising interest rates and wages. Some worry that stock buybacks, as opposed to business investment will increase wealth and equality.

"I very much think that this tax cut did not help things from an income and wealth inequality standpoint," said Zidar.

However, because it’s only been a year since the tax reform, its outcome has yet to be fully realized. Experts say its effects will vary industry to industry.

It’s possible that the limiting factor to business investment is a dwindling pool of qualified workers. The NABE survey also reported the largest shortage of skilled labor since October 2000.

Other economic circumstances like the U.S-China trade war and tight monetary policy has increased uncertainty and discouraged businesses from engaging in large-scale investment activity.