As the UK moves towards a People vs. Parliament election, the elitist defender of the big banks will need quite a transformation.
The Tax Cuts and Jobs Act of 2017 — the only major piece of legislation passed by the Trump administration — turns one year old this week. The law’s advocates promised it would create an economic bonanza for working people. Instead, its biggest corporate backers have laid off employees and offshored jobs while the promised investment boom is nowhere to be found. And for all of the talk about rising GDP and a tight labor market, millions are still barely making ends meet.
But that’s not all. As critics warned when the bill was being drafted, the legislation gave disproportionate benefits to one massive, reviled industry: Wall Street. The nation’s six biggest banks enjoyed estimated $14 billion in tax cuts this year — enough to give every teacher in America a $4,000 raise. The banking industry also saw a record $62 billion in profit in the third quarter of 2018, thanks in large part to the tax cuts.
If any industry benefited from the law, it was banking. So, has Wall Street behaved as promised, and invested in American prosperity? Of course not. Wall Street has reinvested in Wall Street.
Like most industries, America’s banking boardrooms spent their tax cut gobbling up shares of their own stock to artificially inflate share prices without actually improving business performance. Indeed, rates of lending — Wall Street’s main contribution to the economy — are actually lower this year than in 2017. These buybacks used to be considered illegal stock manipulation, but — thanks to deregulation — they’re business as usual now.
JPMorgan Chase got almost $3 billion in tax cuts this year, but spent over $20 billion on stock buybacks — in other words, their entire tax cut funded just 14 percent of their stock manipulation. Bank of America’s $3.5 billion handout funded just 16.9 percent of their buybacks. Meanwhile, the company laid off 575 of its employees.
The most repulsive actor was easily Wells Fargo. Their massive $3.7 billion tax cut paid for 10 percent of what the bank spent on buying up its own shares. Meanwhile, the bank fired almost 2,500 people and was implicated in scandal after scandal after scandal. In one case, Wells Fargo admitted to foreclosing on hundreds of homes in error because management failed to create a reliable computer system, traumatizing the suddenly-homeless families that paid for their incompetence. For this, Wells enjoyed a tax break big enough to pay for 66,000 infrastructure jobs.
Then there’s the fact that Citigroup and JPMorgan are among the top five beneficiaries of further potential tax breaks after repatriating their offshore funds. But despite the oft-repeated promise that corporate tax cuts make their way down to workers, America’s biggest banks actually spent less on paying their employees this year than they did the year before.
Taken together, it’s staggering how much of the tax cut legislation was really a barely-cloaked present to the same financiers who crashed the world economy in 2008. And as the sugar-high of stock buybacks has faded, more and more people are predicting another financial crisis in the near future. We’re facing precisely the sort of economic downturn that Congress promised the tax cut would prevent.
There were plenty of organizations, including Americans for Financial Reform, where I work, who called out the tax cut as a gift to Wall Street the minute that it was proposed. They were ignored.
Why? Because policies that could actually protect and help consumers might cut into Wall Street profits. It will take braver politicians and bolder initiatives to finally end finance’s stranglehold on the economy.