Banks got a giant tax cut from Republicans—then they cut jobs, and lending fell
Big banks have proven to be some of the biggest beneficiaries of the GOP tax cut. Bloomberg reports that, in total, major U.S. banks got about a $21 billion break on their taxes last year. And what did they do with that cash-tastic windfall? Not much for the masses, that’s for sure.
Even though their effective tax rates dropped to under 19 percent, roughly 10 points below what they paid in 2016, the banks eliminated thousands of jobs and their lending fell. The people who really benefitted were shareholders, who received major payouts due to the savings.
Bank of America, for instance, issued $1,000 bonuses to some 145,000 staff members in 2018, but it also slashed nearly 5,000 jobs. And while Wells Fargo raised its minimum wage to $15 per hour, the institution eliminated 4,000 positions. Overall, Bloomberg writes, “the ratio of personnel costs to revenue declined as banks gave workers a smaller slice of the money they brought in.”
In the meantime, the lending side of the ledger softened last year, with total loans increasing only 2.3 percent in 2018 versus rising 3.6 percent the year before. The reasons for the deceleration in lending are manifold, including slower home sales due to rising interest rates along with corporations being more flush with cash following the tax cut.
The general take in the Bloomberg piece is that it’s too early to tell exactly how the tax cut will affect lending down the line, but it certainly hasn’t been a boon to date. Bottom line: The banks’ biggest contribution to the economy is their lending capacity, which isn’t breaking any records at the moment.