April 1, 2020
April 1, 2020
The gigantic Coronavirus-related tax and spending bill enacted last week, the so-called “CARES Act,” sets aside $17 billion in loans for “businesses critical to maintaining national security.”
It’s generally understood that the bill’s authors want much, if not all, of this $17 billion to go to a single company: Boeing. So it behooves us to ask whether Boeing benefits America and its economy in ways that merit this largesse. The company’s chronic tax avoidance and its recent wave of stock buybacks suggest that any loans made to Boeing in months to come should have substantial strings attached.
When it comes to tax avoidance, Boeing is in a league of its own. A 2017 ITEP report found that over the eight-year period from 2008 to 2015, the company paid a 5.4 percent federal income tax rate, far below the 35 percent tax rate the company ought to have paid. Incredibly, the company cut its tax bill to zero in five of those eight profitable years.
And the tax avoidance bonanza only got better for Boeing. When President Trump’s 2017 tax cuts dropped the rate from 35 percent to 21 percent, this provided a particularly generous break to companies like Boeing, which had used depreciation breaks to defer reporting billions of profits to the IRS. Under the Trump-GOP tax law, when those profits are finally taxed, they will be subject to the lower rate of 21 percent. After the law was enacted, Boeing immediately recognized a $1.2 billion reduction in its future income tax payments (that is, deferred tax liabilities). For Boeing, close to half its unpaid tax liabilities vanished.
Boeing was hugely and consistently profitable during this decade. The company enjoyed $56 billion of U.S. pretax income between 2011 and 2018. With this torrent of cash, the company steadily bought back stock: It started an aggressive program of repurchasing shares in 2013 and hasn’t stopped to take a breath since. After the tragic pair of crashes involving the company’s 737 Max plane in late 2018, the company dialed back its stock buybacks to “only” $2.6 billion in 2019—still much more than its capital expenditures in the same year.
In fact, since the company started stock buybacks in 2013, it has spent more on stock buybacks than on its worldwide capital investments. This is especially galling because capital expenditures were the thing Boeing and other big companies had promised to do with their money after the 2017 tax cuts.
The Trump-GOP tax law expanded existing depreciation breaks into full expensing, meaning companies could immediately write off the entire costs of investments in equipment. This was supposed to encourage investment for companies like Boeing by lowering the cost of those capital expenditures that companies claimed (with no evidence) were too expensive to make under the previous tax law. This, coupled with a much lower corporate income tax rate, was supposed to unleash investment that would create jobs and boost wages for everyone, according to the White House and supporters of the new law.
But in 2018, the first year under the new tax law, Boeing spent $1.7 billion on capital expenditures and more than four times as much—$9 billion—on stock buybacks.
The company’s multi-year $43 billion spending spree on stock buybacks surely must be a big part of the cash crunch Boeing now faces. The buybacks accounted for about 3/4 of the company’s free cash flow during this period. So, it probably is true that Boeing may be in trouble if it does not receive government help, especially if hard-hit airlines don’t start ordering more planes. But whose fault is that exactly?
In an astonishing display of chutzpah, Boeing’s CEO said last week that he’d reject a federal government bailout if the feds started getting up in his grill about the way he runs his business, especially if the result was the federal government having an equity stake in Boeing. But if, from a mid-Coronavirus standpoint, Boeing’s leadership thinks their recent use of cash is beyond reproach, shouldn’t that make American taxpayers think twice about writing them a blank check for up to $17 billion at this time?
The bad news is that the CARES Act appears to have done just that. By all accounts, the legislation includes the equivalent of a giant cartoon check for up to $17 billion to Boeing. The good news is that we don’t have to give it to them without asking hard questions about how they’ll use the money. It’s still within Congress’s power to ensure that Boeing uses these loan guarantees first and foremost to avoid laying off its loyal workforce, and does *not* use them to further line the pockets of its shareholders. It’s nowhere near too late to make sure that this time, the nation gets its money’s worth.
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