- Democrats and Republicans have been arguing about how large companies will spend gains from the GOP tax law’s huge corporate tax cut.
- In the first quarter, spending by S&P 500 companies supported both parties’ arguments.
- Share buybacks hit the highest level in a single quarter, supporting the Democratic argument that the money will go to shareholders and not workers.
- Capital expenditures also surged to the highest level for any first quarter on record, supporting the GOP’s argument that the law will boost economic growth.
The biggest companies in the US made a killing in the first quarter of 2018, largely in part to the new GOP tax law. The windfall also helps bolster both Democratic and Republican arguments for and against the massive rewrite of the tax code.
Earnings for S&P 500 corporations surged 23.3% in the first quater, the largest increase in growth since the fourth quarter of 2010.
Spending by these firms also surged in the first quarter. Where those increased expenditures went will weigh heavily into the fight over the law.
Buybacks, the practice of a company buying their own stock to lift the value of the investors’ shares, jumped to a record $178 billion for the quarter – beating the previous record of $172 billion from 2007.
Democrats have argued since the law’s inception that the massive corporate tax cut will benefit shareholders rather than average workers.
Their argument has been supported by an increase in S&P 500 firms’ dividend payments. The total amount these companies are projected to spend on buybacks and dividends is on pace to top $1 trillion in 2018, another record high.
Republicans also received some data points to support their messaging: Namely, spending by S&P 500 firms on capital expenditures (capex) – investments in the company like new equipment – surged 21% in the first quarter to $159 billion. That is a record amount for a first quarter.
Republicans argue that capex spending will grow the economy and benefit workers, saying increases in business capacity will require more workers, increase hiring, and eventually raise wages. However, wage increases have so far not materialized.
So far Americans aren’t huge fans of the tax law, and polls show they generally believe the benefits are going to wealthier Americans. Republicans are hoping to convince more Americans that the tax law is benefitting them, which in turn would boost their electoral chances in a fraught 2018 midterm election landscape.