Wouldn’t Employees Prefer Permanent Tax Deductions to One-Time Holiday Bonuses?

This is the season for announcing year-end employee bonuses. And two days ago, in response to the bonus announcements of several large American corporations, President Donald Trump tweeted:

Our big and very popular Tax Cut and Reform Bill has taken on an unexpected new source of “love” – that is big companies and corporations showering their workers with bonuses. This is a phenomenon that nobody even thought of, and now it is the rage. Merry Christmas!

Indeed, a few firms have explicitly referenced the Trump Administration’s corporate tax reductions in their bonus announcements. Bank of America’s CEO Brian Moynihan, for instance, wrote to his employees:

I want to highlight the December 20 passage in the United States Congress of the most fundamental tax reform since 1986. When the legislation is signed into law by the President, these reforms will impact our company in different ways. For instance, we will see an immediate reduction in earnings as a result of a write-down of the value of our deferred tax asset. Beginning in 2018, we will see benefits from the tax reform, too, in the form of lower corporate tax rates.

In the spirit of shared success, we intend to pass some of those benefits along immediately. U.S. employees making up to $150,000 per year in total compensation – about 145,000 teammates – will receive a one-time bonus of $1,000 by year-end.

At first glance, this would appear to be a very generous gesture. But did you notice the appearance of the phrase “one-time” in Moynihan’s announcement?

It implies that employees should not expect such bonuses in the future. The reduction in the corporate tax rate, however, is a permanent one.

That raises an interesting public policy question. If President Trump and the Republican Party wanted to shower workers with “love,” shouldn’t they have redirected a portion of the corporate tax cuts to employee tax reductions?

In other words, if these bonuses were designed to serve as pass-throughs of the employers’ new tax benefits to their workers, shouldn’t the federal government have simply reduced the payroll taxes of those very workers?

That way, instead of merely enjoying a one-time bonus, employees could have joined their employers in enjoying permanent tax benefits.

Indeed, any rational employee would prefer a permanent tax reduction to a one-time holiday bonus. But for some reason, President Trump and the Republican Congress decided against sharing their “love” in this manner.