New Tax Law Means Benefits for Employees, Good PR for Companies

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(New tax laws expected to benefit employees)

Major consumer companies are hopping on a train of enhanced employee givebacks after passage of the new tax law, which cuts corporate tax rates.

This week, AutoNation announced plans to double its contribution to workers who save for retirement through its 401k plan, and to provide fully paid cancer insurance for employees and their families, as well as a financial benefit for those diagnosed with the disease.

The nation’s largest auto retailer is among the companies nationwide that have been issuing bonuses to employees, boosting company contributions to retirement, raising the minimum wage, or contributing extra to charity since Congress passed and President Donald Trump signed the tax law in December.

While some economists cheer the corporate moves to keep the economy expanding, and consumers benefiting, others see the corporate givebacks as public-relations maneuvering to curry favor with workers, consumers and the Trump administration. They argue the companies are reaping benefits from the huge corporate tax rate cut — from 35 percent to 21 percent — all the while taking action mainly to improve their public image.

“The companies look better for the public. (People think) ‘this is a good company,’ ” said South Florida banking analyst and economist Ken Thomas.

Ultimately, anything a company does is about its stock price, Thomas said.

“In corporate America, the first priority is maximizing shareholder value. While this can often be done directly by increasing dividends or doing stock buybacks, the idea is that all of these other approaches will indirectly increase the stock price and earnings over time,” Thomas said.

Daniel Gropper, dean of the business college at Florida Atlantic University in Boca Raton, said the bonuses and other corporate announcements “prove the point that when there are tax cuts for corporations, they have an effect.”

He does note the tax law has provided opportunities for consumer companies that are “particularly interested in getting their name out there. It may help them with consumers … to be out in the news media in a positive way.”

The corporate moves also are aimed at recruitment, Gropper said. When companies enhance their compensation packages, it sends a signal that “we’re going to be a company that’s treating you well,” he said.

As a result, the company said it will pay fully for MetLife cancer insurance for employees, spouses and children up to age 26. Only a small number of employer-sponsored cancer and critical illness insurance plans are fully paid by the employer, said MetLife spokeswoman Erin DeWaters.

The company also said it would match 50 cents of every dollar an employee contributes to the company’s retirement plan, up to 4 percent of eligible compensation. Previously, the match was half of up to 2 percent.

Marc Cannon, spokesman for AutoNation, said the company decided on an approach to tax-benefit savings that would be ongoing, rather than a “one and done” employee bonus.

AutoNation said it expects $70 million to $100 million in annual savings from the new tax law.

The company said in its news release and securities filing that its tax-savings estimates could change, as they have not yet been reviewed by the public company’s independent auditor.

Polls by CNN and others showed that the changes in the new tax law were unpopular with the public because of a perceived benefit to the wealthy. Analysts have said, and Democrats contend, that while some taxpayers may benefit in the short term, the new law would greatly benefit corporations and the wealthy in the long term.

In the weeks that followed passage, companies including AT&T, Comcast, American Airlines, Southwest Airlines, JetBlue, Wells Fargo, PNC Bank and Wal-Mart Stores have announced bonuses, minimum wage increases, retirement fund contributions, or boosts in charitable contributions.

“This is the nature of the competitive marketplace. Once one company announces there’s going to be a bonus plan, workers say: ‘What about us?’ ” Gropper said.

“Managers are having meetings about ‘what can we do to stay competitive.’ ”

Thomas said the employee bonuses also are part of further boosting the expanding economy. Workers are likely to spend the money — as much as $1,000 for some — rather than save it.

“Ultimately, that money will go back into the economy,” Thomas said.

(Article written by Marcia Heroux Pounds)

(SOURCE: TNS)