In April, United Airlines announced that they plan to lay off thousands of workers despite having just received a $5 billion dollar government bailout. It’s true that United, along with countless other companies in hard-hit industries, is in dire revenue straits because of the coronavirus crisis. However, it’s also true that United could have avoided the worst consequences of the current crisis and saved thousands of jobs if it hadn’t spent the past few years blowing billions of dollars on sky-high executive pay and having shareholders withdraw all available cash.
As the Senate begins its negotiations with the House on the $3 trillion round of COVID-19 relief that just passed, it’s worth noting that the most recent bill focuses on small businesses and providing cash injections to individuals rather than major corporations.
United’s $5 billion bailout comes on the tails of another massive handout given to the airline from the federal government. In 2017, President Donald Trump and his GOP-led Congress passed the Tax Cuts and Jobs Act, a complete overhaul of the federal tax code that slashed corporate tax rates nearly in half and significantly altered how multinational companies pay their taxes. This change allowed United to reduce its tax expense by a whopping 95.9 percent in the last quarter of 2017 alone.
In the next two years, United continued to reap a massive tax windfall thanks to those changes, freeing up billions of dollars in revenue they could have easily spent on boosting worker pay, investing in new jobs and development, or even perhaps saving just a little to cushion the blow of future crises. United didn’t do any of that.
Instead, in 2019, United spent $12.1 billion on salaries and benefits, including an annual $12.6 million compensation package for CEO Oscar Munoz and multimillion-dollar payouts for everyone else in the C-suite. Also that year, United shareholders took out $1.6 billion in cash from the corporation to spend on stock buybacks, a move designed to artificially inflate the value of a company and enrich shareholders. The company recorded a net profit of $3 billion for the year, and yet now claims that it simply has no more money to pay their workers.
To be clear, United had billions of dollars on hand that it could have and should have used to protect their workers from crises such as this one. Though shareholders and United executives made massive gains in the last two years, average employees largely didn’t share in those benefits. That was a choice that United’s leadership made.
It seems that the profit-over-people choice is one that United is set to continue making even in the midst of a global pandemic and economic crash. Under the terms of the $5 billion bailout agreement, United is barred from laying off staff for six months, so CEO Oscar Munoz simply punted the date to October 1 — the first legally permissible day for him to fire his workforce.
United’s bailout was negotiated to keep workers with steady income in their pockets and give the company time to come up with a new strategy. However, as is so often the case with few-strings-attached handouts from the government, short-term corporate greed wins out over the long term benefits of a stable workforce. Corporate greed is something I know well — as a former managing director at BlackRock, I was part of the team tapped by the Federal Reserve during the financial crash of 2008 to structure some of the Fed’s loans to bail out AIG and to assess Citibank’s solvency.
What United did with its tax cut money is a cautionary tale of what other major companies will do with the multibillion-dollar funds, grants and loans they’re likely to get under the government’s coronavirus relief plan. That story is one of immense corporate greed and complete disregard for workers – all on the American taxpayer’s dime – that is simply unsustainable for our society. Luckily, there’s still time to prevent history from repeating itself.
Any future bailouts to companies must come with strings attached, especially any that come in the phase before the election. Congress passed such a massive coronavirus relief package in order to prevent companies like United from laying off thousands of workers. Clearly, giving the money to the company with no strings attached will not accomplish that goal. Things like banning the use of federal funds on stock buybacks and instituting sharp CEO-to-worker pay ratios are common sense measures that will curb the worst excesses of corporate greed.
There is no good reason why American taxpayers should be sending their hard-earned money to the government just so that it can bail out corporate executives and shareholders for years to come.
Morris Pearl, who previous served as a managing director at BlackRock, is chair of Patriotic Millionaires, which focuses on promoting public policy solutions that encourage political equality, guarantee a sustaining wage for working Americans and ensure that wealthy individuals and corporations pay their fair share of taxes.
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