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Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

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Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#51

Post by superuser2 »

virmundi wrote: post #29
xenadu02 wrote: post #25

So many companies with so much profit they literally can't find any way to invest it to generate return. It might make you wonder why wages are stagnant or what the argument for outsourcing to lower labor costs is really about, if you were the sort of person to bother wondering about such things.

I no longer wonder about such things. The simple fact of the matter is that the system is designed to work against wage earners. It focuses on the benefit of our corporate overlords. For example, I use to work for a company as a wage earner. I left, moving my 401k into a self-directed IRA. Since the market has been bad lately, I remained in cash. I want to put that money somewhere else: property. I would love to buy…

I don't want to be rude, but this doesn't make much sense.

Preferential tax treatment for retirement savings accounts was created with the the specific intention of encouraging people to save for retirement, in order to minimize the extent of poverty among senior citizens. It is a feature, not a bug, that these accounts make it difficult to speculate, because the speculation decisions of amateurs and even most professionals are provably, demonstrably worse in aggregate returns than buy-and-hold passive investment in the overall economy.

If you want to speculate on real estate, you are free to do so. You just have to pay taxes on the money used to do so, so that the government can afford to rescue you from poverty if you fail.

> Since the market has been bad lately, I remained in cash.

For the record, buying at the top of the market and cashing out in downturns is the maximally wrong investment strategy. A random number generator would in general outperform this strategy, because at least some of the time it would do anything but that.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#52

Post by icebraining »

virmundi wrote: post #29
xenadu02 wrote: post #25

So many companies with so much profit they literally can't find any way to invest it to generate return. It might make you wonder why wages are stagnant or what the argument for outsourcing to lower labor costs is really about, if you were the sort of person to bother wondering about such things.

I no longer wonder about such things. The simple fact of the matter is that the system is designed to work against wage earners. It focuses on the benefit of our corporate overlords. For example, I use to work for a company as a wage earner. I left, moving my 401k into a self-directed IRA. Since the market has been bad lately, I remained in cash. I want to put that money somewhere else: property. I would love to buy…

That doesn't seem like such a great example; when companies get a tax break, it's usually with restrictions on its use as well. That's the whole point of having a tax break: encouraging certain behaviors.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#53

Post by pat2man »

carsongross wrote: post #34

Some day, please let it be soon, corporations will all be treated as big LLCs, with profits/dividends passed through to shareholders proportionally to be taxed at the individual income rates. Couple that with taxing cap-gains as income, since it is, and all this nonsense goes away. Owners (rather than todays "owners") get their share of profits, rich people pay their share in taxes, good triumphs over evil, and so on…

The problem with treating investment profits as regular income is that you can have negative investment profit but you can never have negative income. If I make 100k one year on my investments and loose 100k the next year I effectively paid taxes without making any money.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#54

Post by downandout »

I wonder how much of this is related to the harsh corporate tax environment in the US. Take Apple for example. They can't use their offshore cash to directly fund buybacks or dividends without repatriating the money and paying high US corporate taxes on it. Instead, they have borrowed against their offshore cash to make buybacks, and then whatever cash is needed for debt service can either be funded from operating income or by importing offshore cash in a relative trickle, with a correspondingly low tax burden, while the money grows virtually tax-free overseas.

So by doing share repurchases with borrowed money, shareholders and executives can reap the benefits of offshore cash without subjecting it to the enormous tax burden they would by directly repatriating the money. As long as corporate profits are still piling up abroad, this trend of corporate buybacks will likely continue.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#55

Post by [deleted] »

cperciva wrote: post #6

Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…

[deleted]

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#56

Post by downandout »

sabalaba wrote: post #49
carsongross wrote: post #34

Some day, please let it be soon, corporations will all be treated as big LLCs, with profits/dividends passed through to shareholders proportionally to be taxed at the individual income rates. Couple that with taxing cap-gains as income, since it is, and all this nonsense goes away. Owners (rather than todays "owners") get their share of profits, rich people pay their share in taxes, good triumphs over evil, and so on…

Taxing capital gains at 39.6% (our current top income bracket as of 2016) would be bad for business, job creation, and growth in the US economy. California also taxes long term capital gains (LTCG) at a top rate of 13%. It would mean that an investor in California would experience a LTCG rate of 52.6%, the highest in the entire OECD. Capital has legs and having a non-competitive capital gains rate would incentivize i…

>California also taxes long term capital gains (LTCG) at a top rate of 13%

I'm sure that Zuckerberg et al have brilliant tax accountants, but this is one thing that has never made sense to me. Volunteering to pay an extra 13% simply for the privilege of living in Northern California seems insane to me. Any of these guys could move a few hours down the road to Tahoe or Reno and save themselves billions of dollars in state taxes, even if they left the company headquarters in CA.

I'd also like to see Pricenomics do a study measuring the market cap impact of California's high corporate income tax rates on major publicly traded Silicon Valley companies. I'm guessing investors would be sickened by the results.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#57

Post by spectrum1234 »

cperciva wrote: post #6

Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…

But none of this explains the main reason they would do this (a buyback or a dividend) instead of reinvest the profits. Yes the have lots of cash, but they have for awhile.

So the interesting question is why are they doing this now given the medium/long term ROI a company with cash looks generate. It could mean they stopped seeing obvious medium/long term investments. Maybe a small bubble is 5-10 years away.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#58

Post by lyncnshare »

pat2man wrote: post #53
carsongross wrote: post #34

Some day, please let it be soon, corporations will all be treated as big LLCs, with profits/dividends passed through to shareholders proportionally to be taxed at the individual income rates. Couple that with taxing cap-gains as income, since it is, and all this nonsense goes away. Owners (rather than todays "owners") get their share of profits, rich people pay their share in taxes, good triumphs over evil, and so on…

The problem with treating investment profits as regular income is that you can have negative investment profit but you can never have negative income. If I make 100k one year on my investments and loose 100k the next year I effectively paid taxes without making any money.

You can have net operating loss carry-forwards that offset profits for tax purposes in future years. You can have capital losses that can offset capital gains and some ordinary income at the investor level. So no, you didn't pay taxes on the losses.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#59

Post by lyncnshare »

cperciva wrote: post #6

Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…

I like this idea and my understanding is that they have a similar rule here in Germany.

Re: Buybacks at $46B a Month Dwarf Everything in U.S. Market (2015)

#60

Post by lyncnshare »

JDDunn9 wrote: post #13
cperciva wrote: post #6

Remember, in a perfectly liquid market without taxes, a company which executes a share buyback will have no change in its stock price, since the shared redeemed will be exactly balanced by a reduction in the value of the company; and this is also exactly equivalent to distributing profits in the form of a dividend. On the other hand, when the rate of taxation on capital gains is lower than the rate of taxation on cor…

> a company which executes a share buyback will have no change in its stock price... this is also exactly equivalent to distributing profits in the form of a dividend This is false (conditionally). Most valuations look something like: earnings x growth + cash. If you have cash that you cannot reinvest at the same ROI that you have been growing at, you can increase shareholder value by removing the cash element, since…

Or at least if management thinks (or wants the investors to think) they can continue to exceed the ROI that a normal investor would get making their own decisions.
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