Spending tax bonuses: Pay down debt, fix the car or go on vacation?
CHICAGO – Paola Hinton’s hands were shaking in December as she pulled out bundles of cash and gave each of her 20 employees a $500 bonus. No one in the crowded back room at Five Senses Spa, Salon and Barbershop in Peoria, Illinois, had ever seen $10,000 in cash, and Hinton had it all in a little briefcase.
The employees’ faces lit up, recalled Hinton, who launched the business almost 12 years ago. She has never been able to give bonuses like this before, but the new federal tax law passed late last year made it possible, she said.
“It’s a direct impact,” said Hinton, 41. “I know if I give them $500, they’re going to be able to go do whatever they need to do.”
The sweeping tax overhaul, which President Donald Trump signed into law Dec. 22, permanently lowers the corporate tax rate from 35 percent to 21 percent, among other changes. Republicans supporting the measure said the business tax cuts would benefit workers, as well as shareholders and company owners, in the form of more jobs and higher wages.
Bonuses: Since the law’s passage, more than 250 companies have announced bonuses, affecting about 3 million employees, according to Americans for Tax Reform, the Washington, D.C.-based nonprofit started by anti-tax crusader Grover Norquist.
Despite the flurry of announcements, only 7 percent of 333 large and midsize U.S. companies surveyed by human resources consulting firm Willis Towers Watson have increased wages for all employees or plan to this year. Another 8 percent have increased or are planning to increase pay for lower-wage workers, and 11 percent have introduced or are planning to introduce profit-sharing payouts or one-time bonuses.
Economists question whether one-time bonuses — which aren’t necessarily being handed out to all workers — will be more of a short-term shot for the economy, rather than the boost that wage increases could bring. Skeptics have said the programs are largely public relations moves or undertaken to curry favor with the Trump administration. Some companies have announced the cash disbursements as they were also laying off employees.
The list of Illinois-based companies that have announced bonuses for their employees is dominated by financial institutions, including Discover Financial Services, First Midwest Bancorp, MB Financial, Wintrust Bank, and American Community Bank & Trust in Woodstock.
Other Chicago-area residents are benefiting, too, as employees of major corporations who have announced the payouts. AT&T is distributing $200 million, while American Airlines is handing out $130 million and Comcast $100 million.
Smaller companies: But as Five Senses in Peoria shows, it’s not just banks and Fortune 100 companies sending workers home with extra cash.
Hair stylist Breitanya Williams spent part of her bonus fixing the taillights on her Buick Rendezvous – the only vehicle she and her husband own that will fit all four of their young children.
Another portion of Williams’ extra money went toward subscribing to a workout program. “That’s like my life-changing part,” said Williams, 25. “I just had my fourth child in five years … (and I’m) trying to make my family and myself healthier.”
Williams’ colleague Laura Naven also put her bonus toward her family. She paid down hospital bills left over from when she gave birth to her 4-month-old and put some money into savings.
“I have two kids, so building up the savings is key right now,” said Naven, 33, general manager at Five Senses.
Rare: A big tax cut like this one is rare, said Lawrence Officer, an economics professor at the University of Illinois at Chicago. It happens maybe once or twice in a generation, and usually companies wouldn’t pass it along to their employees so quickly, he said.
It will take the better part of a year to see what economic impact the tax changes will have, Officer said. That includes whether it leads to true wage increases, which consumers factor into their budgets and can lead to sustained higher spending.
A one-time infusion of extra cash isn’t going to change the way people spend, Officer said.
The Economic Stimulus Act of 2008, signed by President George W. Bush, included individual income tax rebates. Most tax filers received a $600 rebate, or $1,200 for joint tax filers. Instead of spending it and jump-starting an economy trying to climb out of the Great Recession, most people used it to pay down debt. Tax credits were deployed in 2009 and 2010 as part of the American Recovery and Reinvestment Act of 2009, signed by President Barack Obama.
Now that the economy is better, people may not be paying down debt. But “if it’s a bonus, a one-time thing … you say, ‘To hell with that, I’m going to take a vacation in the (Wisconsin) Dells or go to Jamaica,’” Officer said.
That’s more or less what Kristin Moore, 41, is doing. A corporate culture administrator at MB Financial, Moore booked a weeklong trip to Iceland in April with her mom as soon as she was notified about her bonus.
About 75 percent of MB Financial employees received a bonus. Moore said she got a little less than $600 after taxes.
“Nothing specific was planned, but definitely once I got notice about (the bonus) it was a quick phone call to my mom,” she said. “She went online and had something booked that day.”
Not enough: Other employees receiving bonuses were grateful but said a one-time windfall didn’t paper over larger financial concerns.
Dea Polchow, 57, who works at an AT&T wireless call center in Rantoul, in east-central Illinois, received her $1,000 bonus check — minus about $400 in taxes — just in time to pay off some holiday shopping bills.
While she was happy to lower her debt, there isn’t money left for much else. “It’s $600,” she said. “By the time you get a couple of bills caught up, it’s not much.”
After the announcement of the bonuses, AT&T sent layoff notices to 600 workers in Illinois and other Midwestern states.
At American Airlines, which also promised employees $1,000 bonuses, Dennis Tajer, a captain based in Chicago, said he’d likely use his check to help his daughter with college expenses.
Tajer, a spokesman for the Allied Pilots Association, the union representing American’s pilots, noted the money will have a greater impact for lower-wage airline workers. While pilots appreciated the extra cash, the bonuses don’t address other concerns about compensation, he said.
“A thousand dollars is nice, but let’s get at the foundation of this,” Tajer said.
Long-term benefits: Instead of one-time cash payments, some companies promised workers long-term improvements in wages or benefits.
In addition to handing out bonuses, MB Financial raised its minimum wage to $15 beginning Jan. 1. The bank previously paid the legal minimum wage.
Walmart, meanwhile, said it would raise its starting wage for hourly associates to $11 from $9 and expand paid family leave benefits. That’s in addition to giving out one-time bonuses to all employees who have worked for the retailer for at least two years or aren’t benefiting from the starting wage increase.
In Illinois, more than 34,600 hourly Walmart and Sam’s Club workers will receive a bonus, and about 20,000 will receive a pay increase, spokesman Blake Jackson said. After the raises take effect in February, the average wage for full-time workers in Illinois will be about $14 per hour, up from $13.61.
“Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S.,” Walmart CEO Doug McMillon said in a statement earlier this month announcing the changes.
However, on the same day Walmart announced the bonuses and raises, it also announced it was closing 63 Sam’s Club stores, including six in the Chicago area. Meanwhile, 400 to 500 jobs at the company’s Arkansas headquarters are being cut, though some employees will be rehired in different roles. More layoffs are expected next year when Walmart relocates facilities on the site of its new corporate headquarters.
Starbucks and JPMorgan Chase also credited the tax legislation for bumping up already-planned improvements to benefits and wages.
At JPMorgan Chase, nearly 20 percent of the bank’s Chicago-area workforce, or 2,734 hourly employees, will see wages rise to $16.50 per hour on Feb. 25, spokeswoman Christine Holevas said. Most currently earn $12 per hour.
Chase had already planned to increase those workers’ pay to $15 per hour over a couple of years, but it moved up the timing as part of a plan to spend $20 billion nationwide over five years on raises for 22,000 hourly workers, new branch openings, and increased lending and philanthropy.
Similarly, Starbucks was already working on plans to give retail employees sick time benefits, and the company raises wages annually. But it wouldn’t have introduced paid sick time this soon, or made additional wage increase and stock grant bonuses, without the legislation, spokesman Reggie Borges said. Wage increases, which take effect in April, will vary by region but total roughly $120 million through the end of the fiscal year.
Retaining workers: Corporations likely have another motive beyond sharing the benefits of the tax cut: finding and keeping workers in a tight labor market, said Ben Harris, a visiting professor at Northwestern University’s Kellogg School of Management.
“Companies don’t give bonuses out of the goodness of their heart; they give bonuses to attract workers or keep the workers they already have,” Harris said. That said, “from a worker’s perspective, $1,000 is $1,000. It doesn’t matter why my company is paying it.”
A bonus and raise helped retain at least one employee at Fifth Third Bank’s south suburban Orland Park branch. The Cincinnati-based bank raised its minimum hourly wage to $15 and distributed one-time $1,000 bonuses to more than 13,500 employees, including Gloria Torres, 69, who started working part-time as a teller after “retiring” seven years ago, and had been planning to seek full-time employment elsewhere for financial reasons.
“But after (the bonus and raise), I figured, Why not stay with Fifth Third?” said Torres, who has worked at the bank for 13 years.
About 75 percent of the bank’s employees received a pay increase or bonus during the holidays. All 14 Orland Park employees received the bonus, branch manager Reina Goodman said.
While Fifth Third points directly to Trump’s Republican-backed tax cut as the catalyst for the bonuses, Torres is not particularly interested in the politics behind the decision.
“I guess have to give (Trump) a little credit there,” she said. “But I feel more gratitude towards the bank, the people I work with.”