We’re living through the worst “good” economy in generations, a reality that many of the rich and powerful people who have rigged the system are desperately hoping the rest of us won’t notice. The last time rich people managed to siphon off this much of the treasure that our economy generates, handlebar mustaches were a thing, and not just in hipster coffee shops.
Corporations and investors are getting rich, but most North Carolinians are just trying to get by.
Turn on the TV, scan Twitter, or peruse the business press and you’re treated to a conga line of commentators, conservative politicians, and wealthy corporate types going on and on about how great our economy is. But if things are so great, why is it so hard for most of us to make ends meet?
If you’re wondering where all of the wealth is going, two words you need to know: Stock buybacks.
A stock buyback is when a company buys outstanding shares from its investors, a practice that directly pays off existing shareholders and personally enriches corporate executive who receive stock options as part of their pay.
After Congress and the Trump administration handed out massive business tax cuts at the end of last year, corporate suites across the county have used that newfound wealth to enrich their shareholders, and themselves. In the first half of 2018, the biggest 500 corporations in the United States spent nearly $400 billion on stock buybacks. The figure is likely to grow to $1 trillion by the end of the year.
If $1 trillion is a hard number to wrap your mind around, here are a couple of ways to think about it: If that wealth were distributed equally, it would mean roughly $3,000 for every person in the United States. It’s also more than the entire federal deficit for the last fiscal year, so when the President and other conservative politicians wring their hands about the debt, remember that stock buybacks issued by only 500 companies this year could have more than balanced our public books.
We were promised that companies would use their tax windfall to create jobs and hike wages, but that was always a tall tale, and most of the storytellers knew it. We know it was a whopper because leaders of most publically traded companies are legally required to make their shareholders as rich as possible, so they are forced to hand over most of a big tax windfall to their wealthy investors. If a CEO of a publicly traded company decided that it would be nice to give their workers big raises instead of distributing tax savings to shareholders, they would get sued, fired, or both.
To make matters even worse, the splurge on stock buybacks has even exceeded what Fortune 500 companies are investing in their own future growth. The biggest companies in the United States spent more on stock buybacks than they invested in new equipment and property in the first half of the year, so, not only are today’s working people getting passed over, companies are also underinvesting in things that could create new jobs in the future.
We’ve actually seen this play in North Carolina already, and it had the same ending. The North Carolina legislature has been passing out gifts to profitable corporations and rich shareholders for years before the federal government got into the game. Since 2013, the corporate tax rate has been cut by almost two-thirds and millionaires have gotten a huge break on their personal income taxes. Just like last fall in Washington, DC, North Carolinians were promised that tax cuts would usher in a new era of prosperity for everyone in the state, and just like we’re seeing across the country today, it didn’t exactly work out that way.
All of the most pressing and profound economic problems that we had in 2013 are still with us. We’re not creating enough middle-class jobs, which is trapping far too many people in low-paying positions with no economic security. We’ve abandoned almost a quarter of the children under five in our state to poverty and hunger, and the racial gap in infant mortality has increased over the last decade, and we’re not giving students the tools they need to prepare for the future. A few urban pockets of North Carolina grew rapidly, but most small towns and rural communities are not sharing it that expansion, and many lost jobs in the last year. The promised surge of growth also never materialized, as job creation in North Carolina has been virtually indistinguishable from the national average and has actually lagged behind several of our neighbors in the southeast.
We have the right to expect better, and there certainly is enough wealth being created to make that happen. The only question is when we will force elected leaders in Raleigh and Washington to do the peoples’ work, instead of working to further enrich the wealthy few.
Patrick McHugh is an Economic Analyst with the Budget & Tax Center, a project of the NC Justice Center.