Behind the 3 million workers' tax cut bonuses

They represent small fraction of company's savings

By JULIA HOROWITZ AND TAMI LUHBY
Pool via CNN

NEW YORK (CNNMoney) - President Trump is taking credit for bonuses given to 3 million American workers because of the new tax law.

That's only part of the story.

Many companies have cited the tax law as they announced bonuses, pay raises and sweeter 401(k)s. Those benefits are putting money in workers' pockets. But they represent a small fraction of the billions of dollars that companies will save because of a sharp cut in their tax rates.

Wall Street analysts expect that public companies will spend a much bigger share of that cash buying back their own stock and increasing shareholder dividends. That's a big reason the stock market has taken off.

Also, with unemployment at a historically low 4.1 percent, many companies are having trouble hiring. The job market is so tight that many companies increasingly will be forced to raise pay and offer better benefits to entice job candidates and keep current workers from leaving.

Walmart, for example, said on Jan. 11 that it would raise its minimum wage to $11 an hour and give employees a one-time bonus of up to $1,000. In all, the initiatives cost $700 million, the company said.

Later in the month, Walmart announced that it was buying back $4 billion in company debt.

Wells Fargo raised its minimum wage to $15 an hour, from $13.50.

"We believe tax reform is good for our U.S. economy and are pleased to take these immediate steps to invest in our team members, communities, small businesses, and homeowners," CEO Tim Sloan said in a statement.

Wells Fargo is expected to be one of the biggest winners from tax reform. Banks pay relatively high taxes, so the company will get a boost now that the corporate rate is down from 35 percent to 21 percent. Wells Fargo makes most of its money in the United States.

The tax law is a $3.4 billion windfall for the company, mostly based on money it owes the government in the future, or what's known as a deferred tax liability.

-- CNNMoney's Matt Egan contributed to this report.

Copyright 2018 by CNN NewSource. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.