Tax Reform Law Kicks Off Wave of Paycheck Bonuses

Published February 5, 2018

Since the Tax Cuts and Jobs Act took effect on January 1, 2018, more than 300 companies have publicly announced plans to give employees bonuses, pay raises, or pension contribution increases.

The new law, signed by President Donald Trump on December 22, 2017, reduced most individual income tax rates, permanently cut the corporate income tax from 35 percent to 21 percent, ended the practice of double-taxing American businesses’ profits earned in other countries, and cut overall taxes by an estimated $1.5 trillion.

Surprised by Response

Russ McCollough, an associate professor of economics at Ottawa University and a policy advisor for The Heartland Institute, which publishes Budget & Tax NewsΒΈ says the new trend surprised him.

“As far as the immediate effects of the cuts, the way companies have gone about it has been a surprise to me,” McCollough said. “I certainly did not expect this outpouring of companies doing it. I was expecting most of the long-term benefits to be with new growth in new areas, and companies spending some of the cash reserves they’ve been building up.”

Tax reform was likely to boost workers’ take-home pay, says Grover Norquist, president of Americans for Tax Reform, but other effects were unexpected.

“In February, 90 percent of Americans will see their pay increased, because the withholding will be adjusted to match the lower taxes, and we expected that,” Norquist said. “What we didn’t expect was that within three weeks of the bill passing, three million people would have been told by their employers that they were getting a bonus, or a higher 401(k) contribution, or more benefits, or pay increases.”

‘At Full Steam Again’

McCollough says workers and business owners alike are benefiting from the changes to the corporate tax rates.

“Some of it might be a bandwagon effect, but I think it’s mostly due to the company recognizing that they had a labor force that was ready for more production and productivity,” McCollough said. “They wanted to reward them for the work they’ve done. They’ve have been waiting for eight or nine years, since the Great Recession, to get the company really operating at full steam again.”

Norquist says less money taken by government means more money for workers.

“One of the things we need to remind ourselves is that tax cuts are pay increases and tax increases are pay cuts,” Norquist said. “That’s what the bonuses do: they remind people that tax cuts are pay increases.”

Opposition ‘Representing the Elite’

Opponents of the tax law, such as House Minority Leader Nancy Pelosi (D-CA), are inadvertently making a case for the tax reforms, Norquist says.

“It helps that [U.S. Rep.] Nancy Pelosi has belittled getting $1,000,” Norquist said. “In 2011, the Obama administration put out a note about how important $40 was when they were handing out checks, but [Democratic Party members of Congress have] now decided that the tax cut doesn’t mean anything.”

Norquist says the critics are fighting against pro-worker policies.

“They’ve really walked away from representing average, taxpaying Americans to representing the elite who live in big cities and penthouses, pay big property and income taxes, and vote, for some reason, for left-wing Democrats who raise their taxes,” Norquist said.