A senior White House official pushed back against Democrats’ disparagement of the Tax Cuts and Jobs Act and the spate of corporate stock buybacks prompted by the law.
“The buybacks have gone up because the money was locked offshore,” Council of Economic Advisers Chair Kevin Hassett said during a March 21 Senate Budget Committee hearing.
“The worker effect [of the tax law] comes from capital formation, which happens over time. The buybacks are going to be front-loaded,” Hassett said in response to questions from committee member Chris Van Hollen, D-Md., about the benefits provided to workers under the TCJA (P.L. 115-97) relative to what shareholders receive. Other Budget Committee Democrats also sharply questioned Hassett on the topic.
The hearing, including Hassett's testimony, was meant to focus on the 2018 Economic Report of the President, but much of the discussion centered on partisan disagreements over the economic benefits of the TCJA. White House officials and congressional Republicans say the law is raising the paychecks of working Americans and helping businesses to be internationally competitive, while Democrats stand by their objections over the law’s $1.5 trillion price tag and its benefits skewed toward wealthier individuals and corporations.
The stock buybacks have been attributed by Hassett and others to the lowered rate on repatriated income in the TCJA, which also dropped the corporate tax rate to 21 percent and moved the United States to a territorial tax system. A Goldman Sachs economist predicted in January that companies would mostly use their inflow of cash after deemed repatriation for mergers and acquisitions, share buybacks, and paying down debt.
Hassett’s arguments at the hearing echoed remarks he made February 22 at a White House briefing that “going forward, we’re going to see a lot of capital formation and wage growth,” and that the full positive effect on labor compensation and capital investment might take three to five years.
Other Senate Democrats have raised concerns about stock buybacks resulting from the tax law. A March 8 memo from Senate Finance Committee ranking minority member Ron Wyden, D-Ore., noted that corporations have authorized $218 billion in buybacks since the TCJA was signed into law, and Sen. Cory Booker, D-N.J., has proposed a legislative amendment that would tie worker pay to stock buybacks.
During opening remarks, Van Hollen noted that foreign investors own 35 percent of all U.S. stock, to which Sen. Ron Johnson, R-Wis., asked Hassett if he thought “foreign investors investing in America” was “a good thing.”
Hassett replied that U.S. companies that repurchase stock are returning cash to shareholders who reinvest. “If the shareholder is a foreign shareholder who owns U.S. equities, he’s presumably done a portfolio analysis that suggests some share of his portfolio should be invested in the U.S., and the share buyback probably doesn’t change that,” he said. “And so I think it’s highly likely that share buybacks will be reinvested in U.S. equities.”
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