Many banks in Rhode Island and elsewhere have showered employees with pay raises and bonuses since President Donald Trump and fellow Republicans in Congress passed the large cut to the corporate tax rate last December.
Banks also have been spending more on technology and other infrastructure in response to the 2017 federal tax overhaul, which permanently slashed the corporate tax rate to 21 percent from 35 percent, starting this past January.
Trump recently suggested cutting the corporate tax rate a second time, down to 20 percent. The president has said such tax cuts not only boost corporate profits and returns to investors but also lead to job creation, higher pay and more business investment.
Some observers, however, question how closely the spending increases are tied to the tax reductions.
“With these pay increases, it’s hard to know what [the banks] would have been doing anyway” if there were no tax cuts, said Neil Mehrotra, professor of economics at Brown University in Providence. “It could be just good public relations.”
The banks have maintained the increased spending on employee compensation and business infrastructure has been a direct result of their reduced tax bills.
Depending on their size and other factors, banks said their tax savings have ranged from about $2 million at Bristol County Savings Bank in Taunton to hundreds of millions of dollars at the biggest banks such as Bank of America.
Westerly-based The Washington Trust Co., which has seen tax savings of several million dollars so far, said it provided employees with “compensation enhancements” in January because of the reduction in corporate taxes.
The enhancements consisted of one-time cash bonuses of $1,000 to full-time employees and $500 to part-time employees. The bonuses were given to employees below a certain pay threshold, covering 425 employees, or more than 70 percent of the bank’s 600-member workforce.
In addition, Washington Trust boosted wages by $1 an hour for employees below a certain pay threshold, which benefitted 225 employees, nearly 40 percent of the company’s workforce.
The bonuses and raises were in addition to any merit increases or incentives bonuses for which employees may have been eligible, the bank said.
“We think [such pay increases] will translate into the economy here as people are saving more and spending more,” said Washington Trust President and Chief Operating Officer Mark K. W. Gim.
Providence-based Citizens Bank, with a workforce of more than 5,000 people in Rhode Island, took similar action, announcing in January it was giving one-time $1,000 bonuses to about 12,500 employees.
Citizens said the bonuses were going to employees below a certain pay threshold, covering about 70 percent of its labor force. The bank also said it was giving $10 million to its charitable foundation due to the tax reform.
Citizens President and CEO Bruce Van Saun said: “Corporate tax reform provides us with an opportunity to recognize the role our [employees] have played in delivering better results for customers and shareholders and to positively impact the communities where we live, work and play.”
Middletown-based BankNewport took similar steps. In April, full-time and part-time employees at the bank and at its business partner, Ocean Point Insurance, received a one-time cash bonus of $1,000 and $500, respectively, the bank said.
Also because of the tax reform, BankNewport said it has been hiring new employees and investing in new technology.
BankNewport President and CEO Sandra J. Pattie said the reduction of the corporate tax rate is “an opportunity to further demonstrate our deep pride in our employees and their dedication to our customers and communities.”
Also because of the tax legislation, Bristol County Savings Bank ramped up an ongoing program of technology upgrades and other infrastructure improvements, said Dennis Leahy, the bank’s chief financial officer.
“We found that it’s an investment worth making to better serve our customers and compete with larger players,” he said.
Meanwhile, economists have been divided on the tax overhaul.
Mehrotra said the real winners are corporate shareholders. While the legislation includes tax rate cuts for the middle class, he noted, those benefits are set to expire after several years, but the corporate tax rate cuts are permanent.
Mehrotra said the tax reductions will create larger federal budget deficits, creating a situation in which the government will be faced with either cutting spending or raising taxes.
Michael Ice, Master of Science in Finance program director at the University of Rhode Island, is more bullish on the legislation.
“It’s putting billions in the economy… I think it probably will give the stock market two more years of growth,” he said.
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.
