The TCJA has Reduced the Corporate Tax Rate from 35% to 21%: How Businesses are Using Their Tax Savings

The recently enacted Tax Cuts and Jobs Act (TCJA) reduced federal taxes for about 95% of Americans. But many people are seeing an additional benefit from the TCJA – fatter paychecks made possible by the TCJA’s lower corporate tax rates.

The TCJA dramatically reduced the corporate tax rate from 35% to 21%. While some critics derided this provision as tax relief for the wealthy or corporate welfare, it appears that many corporations are using at least a portion of their tax savings to boost employee compensation.

Walmart is one of those companies. The retail giant, which will pay $2 billion less in taxes under the TCJA, recently announced plans to raise its lowest pay rate to $11 per hour and issue hundreds of thousands of bonuses. The pay hikes and bonuses will total $700 million.

Scores of other corporations in a range of sectors have announced similar plans, including Bank of America, Comcast, Southwest Airlines, Wells Fargo, Sinclair Broadcasting, Carl Black Automotive, AT&T and AccuWeather. Most are paying one-time bonuses, but some are raising wages, too.

Aflac, the supplemental insurance company, is boosting the employer contribution to its 401k plan and dropping a bonus $500 in every employee’s 401K account. Boeing is investing $100 million in what the aircraft manufacturer calls “employee infrastructure.” (Probably more than a foosball table and snack bar, don’t you think?)

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Royal Hawaiian Heritage Jewelry is using some of its TCJA money to open more stores. White Pine Winery plans to add more vines. Both investments are expected to create new jobs.

These initiatives will collectively put billions of dollars of added disposable income in the pockets of millions of workers. Walmart alone has more than 1.4 million employees in the US.

And, rest assured, more companies will announce similar plans to share their tax windfall with workers. Why? Because this trend makes good sense both politically and economically.

Sharing the TCJA’s benefits with employees defangs critics who could otherwise argue that the corporate rate reduction was nothing more than a giveaway to “rich fat cats,” which presumably means business owners and large shareholders. This perception matters because the debate over taxes is never really over. If a significant number of lawmakers came to view the TCJA as overly generous to corporations, they could look to implement other taxes and fees to offset that perceived gift.

Companies that don’t join their peers in boosting employee compensation run the risk of being called out by lawmakers, workers and labor groups for a supposed lack of generosity. That’s not a good place to be, especially in this age of 24-hour news channels and social media.

But economics is the real driver of TCJA-driven compensation hikes. CEOs, by and large, aren’t Ebenezer Scrooge, but nor are they George Bailey from “It’s a Wonderful Life.” Additional companies will share their tax cuts with employees not because it feels good, but simply because such initiatives are in the companies’ best interests.

A wage increase is an investment. People are a critical asset for most businesses. Raising wages helps companies recruit and retain the best people in a tight labor market. Hiring better people can lead to higher productivity, more sales, and stronger bottom line results. Walmart didn’t raise its entry-level pay to $11 out of the goodness of its heart. It did so because Target’s starting wage $11 per hour, and Costco’s is $13 per hour.

Need proof that Walmart is a business shark, not a teddy bear? Even as the company was announcing the TCJA wage hike, it was finalizing plans to cut 10,000 jobs by closing about 10% of its 650-plus Sam’s Club stores.

So, whether a Walmart employee is getting a raise or a pink slip, we should remember the wise words of the doomed Tessio in “The Godfather.”

“Tell Mike it was only business.”

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