The GOP wants to cut corporate taxes to spur growth and jobs, but critics say companies will just use their windfall to enrich shareholders and executives
Bank of America announced Tuesday that it plans to buy back another $5 billion of its stock through the middle of next year, and that is proof enough that tax reform is bound to fail, according to New York Democrat Sen. Chuck Schumer .
The bank had already planned to buy back $12 billion of its shares, and word about the extra purchases helped lift its stock price in early morning trading before it fell back.
Bank of America is buying back the stock, after getting approval from the Federal Reserve for the plan, after generating extra money by selling a U.K. cards business and after Berkshire Hathaway converted warrants to shares.
U.S. banks have been required to get Fed approval for share buybacks and dividend payments since the central bank began stress testing them after the financial crisis to make sure they had enough capital on hand to weather a severe downturn.
But Schumer says the buyback plan just underscores how major corporations are likely to use the tax cuts they are due under the tax reform being pushed by Republican members of Congress. That is to say, they won't be using their windfalls to expand business and create jobs.
"Big corporations can smell the huge tax cut they have coming, and rather than raising workers' pay or hiring new workers, they're buying back stock and prepping huge dividend payments," Schumer said in a statement. "CEOs have made no secret of their intention to spend a coming tax windfall on executive bonuses, stock buybacks and dividends."
A Bank of America spokesman didn't want to comment on the senator's view.
The markets normally view dividend payments and buybacks as a good thing. Bank of America's biggest shareholder, billionaire investor Warren Buffett 's Berkshire Hathaway, converted crisis-era warrants into common shares of the bank this summer after the bank boosted its dividend.
Assuming it isn't needed to fund the immediate needs of the business or can't be put to better use acquiring something, buybacks are one way for a company to use extra cash, Buffett said in his annual letter to shareholders this year.
"Both American corporations and private investors are today awash in funds looking to be sensibly deployed," Buffett said in the letter. "I'm not aware of any enticing project that in recent years has died for lack of capital."