Regions Bank boosts minimum wage, Wall Street surpasses 25k
Regions Bank is handing out raises. According to published reports, Regions Bank says it is boosting its hourly minimum wage to $15 for 5,000 employees.
The move is in response to anticipated savings from the corporate tax rate reduction in the GOP’s tax reform law.
The Birmingham-based bank is one of the latest in a string of companies to announce bonuses or pay raises for employees in the wake of the passage.
And that’s not all, the Dow Jones industrial average surged past 25,000 Thursday, a strong signal of investor enthusiasm for President Donald Trump’s $1.5 trillion tax cut. The milestone comes less than a year after the Dow topped 20,000.
“We broke a very, very big barrier,” Trump said Thursday at the White House. “Every time you see that number go up on Wall Street it means jobs, it means success, it means 401(k)s that are flourishing.”
It’s easy to see why investors like the tax overhaul: Businesses will benefit from a steep cut in the corporate tax rate. They’ll also be able to fully deduct the cost of major purchases from their taxable income, reducing the amount they owe. And companies with large stockpiles of cash overseas can bring the money back to the United States at new, lower rates.
All told, Wall Street analysts estimate the tax package should boost earnings for companies in the Standard & Poor’s 500 index by roughly 8 percent this year. That’s much more generous than the average tax cut of 1.6 percent that middle-class families will receive, according to the Tax Policy Center.
“All else being equal, this should go straight to the bottom line,” said David Joy, chief market strategist for Ameriprise Financial, a financial services company based in Minneapolis. Improved corporate profits contributed to the market’s gains last year.
The public has been less enthusiastic about the tax law. A Monmouth University poll last month found that nearly half of Americans disapproved of it, with only 26 percent in support.
Still, some workers have seen a benefit: So far, nearly 20 large companies have announced bonuses and higher minimum wages as a result of the tax cut. AT&T, Comcast, Bank of America, and American Airlines have all pledged to pay $1,000 bonuses to their employees.
Investors also appear less concerned than many politicians about how the additional profits will be used. The Trump administration says it expects companies will plow much of the extra profit back into their businesses, purchasing more software, machinery, and other equipment. Those investments will make workers more productive and provide a key boost to the economy’s long-run growth. They should also boost wages and salaries for employees.
Opponents of the tax law respond that companies are more likely to pass the windfall on to shareholders in the form of higher dividend payments and share buybacks, which raise the price of those shares still in investors’ hands. Previous cuts in corporate tax rates, in the U.S. and overseas, haven’t always led to higher wages.
For Wall Street, it’s all good, at least in the short run. Most analysts take the view that either way, companies and the economy will benefit. Whether businesses pass most of the extra money to workers or to shareholders, consumer spending should increase and lift economic growth.
Trump has repeatedly made highly optimistic claims about the impact of his tax cuts and other policies on the economy, speculating that they would lead to annual growth of 4 percent or higher.
Last month, the Treasury Department estimated that the economy will expand at a 2.9 percent annual rate for the next decade.
Private economists, as well as the Federal Reserve, forecast a more modest impact. Most expect growth will be closer to 2.5 percent in 2018 and slower than that in subsequent years.
Some companies and sectors will likely benefit more than others, particularly if they derive most of their income from the United States. Analysts at Goldman Sachs estimate that large banks will see their earnings rise by 13 percent as a result of the corporate rate cut. Wells Fargo will likely see the biggest gain, at 18 percent.