Saturday, February 3, 2018

Tax cut bonuses are inflated - the average worker is likely to get $200, not $1000

Your Scriber thought that the $1,000 bonuses bruited about after the tax cut bill passed were suspect. For one thing, those one-time bonuses were not the same as a raise. For another, the value of the bonuses is diminished by their susceptibility to income tax. And, I suspected, this was a big PR stunt by companies flush with cash. Little did I (or most others) know that the $1,000 bonuses only applied to those with considerable longevity at their current place of employment. So now we know. To those working Americans affected by the Trump tax cut bill, the Huffington Post extends Congratulations On Your $1,000 GOP Tax Reform Bonus! And they add “If you have 20 years on the job, that is.

Here are snippets and some additional comments.

If you listen to Republican leaders these days, you’d think workers all over America were rolling around in big fat bonuses thanks to the GOP tax plan. But in a lot of cases, these one-time payouts aren’t nearly as generous as employers, politicians and even the news media are making them out to be.

Take Lowe’s. On Thursday, the home improvement chain announced that more than 260,000 hourly employees in the United States would be eligible for “a one-time bonus of up to $1,000,” a move the company attributed directly to tax reform. If you’re a Lowe’s employee, that’s thrilling news ― until you read a little closer and notice the operative phrase: “up to.”

Lowe’s is following in the footsteps of America’s largest employer, Walmart, and its most direct competitor, Home Depot, in rolling out a $1,000 bonus program that grabs headlines. But the bonuses are actually structured according to tenure. At all three chains, you only get the full $1,000 if you’ve been employed with the company for 20 years.

In the sky-high-turnover world of retail, two decades with the same company is a remarkable feat. If you’ve hung on that long, there’s a decent chance you’re the one running your store.

Instead, you’re much more likely to be a worker on the opposite end of the spectrum: an employee with two years or less time on the job. In that case, you would get a $200 bonus at Walmart or Home Depot, and $150 at Lowe’s, well below the $1,000 figure being cited by politicians and cable news guests.

Lowe’s, Home Depot and Walmart are using roughly the same progressive bonus structure, which Walmart first announced earlier this month:
Less than two years: $200 ($150 for Lowe’s workers)
Two to four years: $250 ($200 for Lowe’s workers)
Five to nine years: $300
10 to 14 years: $400 ($500 for Lowe’s workers)
15 to 19 years: $750
20+ years: $1,000

That gradation was not accidental. Walmart, for example, accompanied the bonuses with an hourly wage. Their spokesperson noted that a 20-year employee would be less impacted by the raise than would be someone with the company for a few years.

The other angle on the bonuses is that even few hundred dollars is a big deal if you are earning an hourly wage of $10. VP Mike Pence: “If you’re going to say that $1,000 is crumbs, you live in a different world than I’m living in,” Pence said Wednesday while at a luxury resort. “If I had another $1,000 in my pocket at the end of the year, I have a term for that: Christmas.” But this Christmas present expires on December 31st.

(You might pause to recall the Weber fraction which, in this instance, is the size of the bonus divided by the yearly pay. For a worker earning $10/hour and getting a $200 bonus, the fraction is 200/20,800, or about 0.01. For CEO earning $1,000,000, the just noticeable difference for a fraction of 0.01, according to Weber’s Law, is $10,000.)

If the retailers follow industry trends, their workforces skew heavily toward short tenures, and therefore smaller bonuses. According to the Bureau of Labor Statistics, retail has more job separations than the average across all occupations. Retail workers quit, got fired or were laid off at a 4.3 percent rate in November, for instance, compared to 3.5 percent for all workers. The average job tenure for all U.S. workers is 4.2 years, according to the most recent data.

That would put your average American worker in the second-lowest bonus bracket.

And that fact is ignored in all the hype and hoopla surrounding Trump’s tax cut (for the rich).

So, the average worker is unlikely to realize lasting benefits. But that has not stopped the Republicans from overstating worker gains.

The law contained few tax provisions that directly benefit low-wage workers, who already are unlikely to have much federal tax liability. Republicans said workers would get higher wages as a result of the lower corporate rates. The argument was that the corporate tax cut would encourage companies to make massive capital investments that would increase worker productivity and make labor more valuable over time. That could happen, but most economists think Republicans’ rosy projections are overly optimistic.

The GOP’s actual argument for how tax reform would benefit workers never involved a smattering of bonuses. Nevertheless, every time a company has announced a bonus, Republicans have said it proves their point and added to the list.

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