Bills
| 3.23.22

Should Companies Using Profits for Stock Buybacks Pay Their Employees a ‘Worker Dividend’? (S. 2514)

Do you support or oppose this bill?

What is S. 2514?

(Updated December 26, 2019)

This bill — the Worker Dividend Act of 2019 — would require publicly traded companies with at least $250 million in annual earnings to pay employees a worker dividend if they use profits for stock buybacks instead of raising workers’ wages.  The worker dividend would total at least the lesser of either the amount it paid to repurchase securities on the open market during the taxable year or 50% of the amount by which its U.S. earnings before interest, taxes, depreciation, and amortization exceeded $250 million. Employers who fail to pay a required worker dividend would be subject to a tax equal to the required dividend. 

This bill would also specify that the dividend should be distributed equally to employees and be paid in addition to compensation that the employer would ordinarily pay to employees.

Argument in favor

While stock buybacks benefit companies’ valuations, shareholders, and executives, they don’t necessarily benefit the employees who create value for the companies which is fundamentally unfair. Companies should pay employees a worker dividend to ensure that workers share in their employers’ profits.

Argument opposed

Stock buybacks are a healthy part of financial markets that benefit investors, including the more than 50% of Americans who directly or indirectly own stock. That money can then be reinvested or used to start businesses or purchase goods and services — all of which boost the economy.

Impact

Employees of publicly traded companies making at least $250 million a year; stockholders of public companies; publicly traded companies; stock buybacks by publicly traded companies making at least $250 million a year; and worker dividends for employees of publicly companies using revenue for stock buybacks.

Cost of S. 2514

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sen. Cory Booker (D-NJ) reintroduced this bill from the 115th Congress to require companies that use profits for stock buybacks instead of raising workers’ wages to pay out a commensurate sum to all of its employees in the form of a “worker dividend”: 

“While corporate profits are at their highest level in 90 years, wages for working families have been stagnant for more than four decades and workers’ slice of the pie continues to shrink. A company that has the profits to reward its shareholders should also reward the employees who are helping create those profits. This legislation has a simple premise: when companies do well, workers should do well. There’s no reason that a country as rich and as powerful as ours should have to choose between great wealth for the few, like corporate executives and shareholders, and great opportunity for all of its citizens, including its workers.” 

Original cosponsor Sen. Bob Casey (D-PA) adds that, in contrast to the 2017 GOP tax bill, this bill puts workers first: 

“The 2017 GOP tax bill is just another tale of how the rich get richer. This law was sold to American workers as a “middle-class miracle” and yet it was actually a huge giveaway to large corporations who used their tax cut to engage in unprecedented corporate stock buybacks. Before the 2017 tax bill was signed, the Senate voted on an amendment I authored which required corporations getting a tax cut increase worker wages at the same rate they increase payouts to their executives and stockholders. Not one Republican supported it. I am happy to join Senator Booker in our continued effort to put America’s workers first, I hope my Republican colleagues will join us.”

House sponsor Rep. Joe Kennedy III (D-MA), who advocates “moral capitalism,” says: 

“A broken economic system that rewards corporate profits at the expense of working people only widens the inequality plaguing every corner of this nation. Any company showering shareholders with buybacks should be legally obligated to share their wealth with the workers who generate it. With Senator Booker’s leadership, we can pass the Worker Dividend Act and rebalance the economic scales in this country.”

The Business Roundtable opposes this legislation. It argues that buybacks contribute to millions of Americans’ retirement security, and that federal mandates on how companies spend their profits would stifle growth. Similarly, a U.S. Chamber of Commerce executive says that limitations on stock buybacks would hurt “Mr. and Mrs. 401(k), . . . the primary beneficiaries of stock buybacks in the past.”

More generally, supporters of buybacks contend that when companies give money back to shareholders, many of the beneficiaries are ordinary people (over 50% of American families own stock, directly or indirectly). Moreover, they argue that the profit that investors gain from buybacks can be reinvested in entrepreneurship or new stocks or spent on goods and services; all of which benefits the economy. 

Treasury Secretary Steve Mnuchin cited these arguments at a Chamber of Commerce event in late February 2018. He said, “Even if people buy back stock, that is money that goes back into the economy that lets investors take that money and allocate it to other things. It’s a complete system.”

This legislation has one Senate cosponsor, Sen. Bob Casey (D-PA), in the 116th Congress. Its House companion is sponsored by Rep. Joe Kennedy III (D-MA). Last Congress, this legislation had one cosponsor, Sen. Casey, and didn’t receive a committee vote.


Of Note: From 2003 to 2012, companies on the S&P 500 spent 91% of their total earnings on stock buybacks and corporate dividends. This left only 9% of these companies’ earnings for workers’ raises and other workforce investments. Corporate boards, often driven by activist investors, spend a significant amount of their profits buying back their own stock and issuing dividends — resources that detractors argue would be better suited to long-term investments in workers, training and innovation. 

After the enactment of the Republican tax bill (aka the Tax Cuts and Jobs Act), corporations’ stock buybacks rose to a record-high $1 trillion in 2018. These buybacks overwhelmingly benefitted corporate executives and wealthy shareholders while workers’ wages stagnated. When stock buybacks reached $200 billion in 2018, the figure was over 40 times the $5 billion announced in worker bonuses and raises up to the same point last year. In 2019, stock buybacks are continuing to outpace worker bonuses and raises: as of mid-September 2019, over $465 billion in stock buybacks had been announced.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / SDI Productions)