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Apple Gives Employees $2,500 Bonuses After New Tax Law (bloomberg.com)
Apple told employees that it's issuing a bonus of $2,500 of restricted stock units, following the introduction of the new U.S. tax law. "The iPhone maker will begin issuing grants to most employees worldwide in the coming months," reports Bloomberg. Apple also announced today that it would bring back most of its cash from overseas and spend $30 billion in the U.S. over the next five years. From the report: Apple confirmed the bonuses in response to a Bloomberg inquiry Wednesday. The Cupertino, California-based company joins a growing list of American businesses that have celebrated the introduction of corporate-friendly tax law with one-time bonuses for staff. AT&T, Comcast, JetBlue, and Wal-Mart also said they were giving bonuses.
Can any corporate finance experts explain why companies would do this? Should we buy that they're just being generous/trying to foster goodwill?
The full $1K was for people that had worked there 20 year. People who had worked there for fewer years received a lesser bonus but still got something. I think 2 years was the minimum. And by the way, Walmart would have laid off those people either way.
Obviously, a zero percent income tax rate will result in zero income tax revenue. Just as obviously, a 100% tax rate (the government takes your ENTIRE paycheck) will result in roughly zero tax revenue - most people won't work a job if they don't get to take home a paycheck. Also companies wouldn't have any reason to.pay more than minimum wage - employees don't demand more because they don't get any of it anyway.
So we can see that tax rates too low result in little or no revenue, and we can see that tax rates too high result in little or no revenue. That's obvious even without understanding the basics of economics, without even knowing the difference between microeconomics and macroeconomics, for example.
If the current tax rate is 80%, that hurts revenue and reducing the tax rate to 70% will increase revenue. If it's at 2%, increasing the rate to 10% will increase revenue. So what we can see, without even reading Chapter 1 of Economics 101 is that anyone who says "increasing tax rates increases revenue" is an idiot, and anyone who says "decreasing tax rates increases revenue" is similarly clueless. There is an optimal rate, not near 100% and not near 0%, that maximizes revenue. Raising rates above the optimal rate hurts revenue, reducing them below the optimal rate reduces revenue.
Also, complex tax laws create "compliance costs". Small businesses file taxes about sixteen times per year - quarterly federal returns, quarterly sales tax returns, quarterly unemployment tax returns, annual business personal property tax returns, etc. There is a real cost to all that, even of the business only owes $1, that's a lot of tax paperwork. (I've filed returns for 12 cents before - the cost / time to fill them out was much greater than 12 cents, so the current situation is a significant net loss for the economy.)
Corporate tax rates follow the same reasoning. If you taxed them at 100%, nobody would invest their savings into starting or growing any companies, since they can't make money. The economy would come to a halt and there would be no revenue (and nearly 100% unemployment). On the other hand, with a 0% corporate tax, you have no revenue from corporate taxes, but higher savings and investment, much better returns from your 401k, lower unemployment, higher wages, etc. So again there is an optimum rate. Too high hurts revenue, and too low hurts revenue. Too high also hurts a lot of other things. Fortunately, corporate taxes have been around for many years, many different rates in many different countries, so economists and policy makers can see how each worked. Based on the data, most countries optimize their revenue by setting corporate tax rates at about half of what the US has had. A few countries have tried very high corporate tax rates. A corporate tax rate of nearly 100%, where the government takes all the profits, is called communism. The USSR tried that. China tried that for a while and reversed course before they ended up like the USSR.