Daniel Hemel on the Trend of Corporate Bonuses

Yes — the Tax Law Could Be Causing Corporations to Pay Bonuses. But It May Be a Tax Game That Won’t Last (with )

Lots of companies are announcing bonuses and attributing their payouts to the new tax law. USA Today lists two dozen S&P 500 firms that have announced cash bonuses already. Some have suggested that these bonuses are a publicity stunt from companies that want to drum up support for a corporate tax cut — a tax cut that in all likelihood will benefit shareholders much more than wage-earners. Others have said that these bonuses are the result of a tightening labor market and would have happened regardless of the tax cut.

It’s possible that a significant share of what’s going on reflects repackaging of bonuses that would have been paid anyway. But it’s also possible that the bonuses are directly attributable to the new tax law — though for a different reason than President Trump and his boosters have claimed. Specifically, corporations may be gaming the effective date of the corporate rate change and pulling forward employee compensation — compensation that would have been paid later anyway — in order to achieve significant tax savings. If so, a substantial share of these payments could reflect a one-time gambit that is unlikely to leave workers any better off in the long run, even as it comes at cost to the Treasury.

Moreover, bonus payments aren’t the only way that corporations can game the new law’s effective date provision. We can expect to see similar behavior when it comes to corporate spending of all sorts. By accelerating investments by a matter of days, weeks, or months, corporations can cut their tax bills without actually increasing long-term capital expenditures.

Read more at Whatever Source Derived

Tax policy