S&P 500 Buybacks Now Outpace All R&D Spending in the US • Hacker News Board

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#11

Post by twoodfin » Wed, Dec 11, 2019, 2:57 PM UTC

rjkennedy98 wrote: post #6

try-perforate wrote: post #4

Read an idea in American Affairs in support of taxing buybacks. The logic goes that if all companies have a fiduciary duty to shareholders because the market is the most efficient capital allocator, AND all companies are giving their cash back to shareholders, THEN it must be true that the market can not figure out how to efficiently allocate this $1T of capital. Thus, the government should have “next dibs” for items…

At the very minimum it should be taxed the same as dividends. Essentially tax buybacks are a tax loophole for giving money back to the shareholder.

It is taxed the same as dividends, just deferred until the outstanding equity is sold, no?

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#12

Post by cs702 » Wed, Dec 11, 2019, 2:57 PM UTC

Large US corporations have been buying back their own stock in record amounts, while investors have been cashing out of US stocks at a record pace, recent data shows: https://www.msn.com/en-us/money/markets/investors-bail-on-st... -- money is not being plowed back into IPOs, secondary offerings, etc.

According to orthodox economic theory, large US corporations must be buying back stock with earned profits and new debt[a] because they don't have better uses for that money. Rational executives and company boards looking out mainly for shareholders must have concluded that buying back shares at current prices is a better use of money than investing, you know, in the business.

Maybe.

In reality, executives and directors could very well be authorizing stock buy-backs to keep share prices up so their stock options remain in-the-money for as long as possible. If that's the case, the buybacks are meant more for the benefit of executives and directors than for the benefit of the business or its shareholders.

[a] Corporate debt to GDP is now at an all-time high: https://ei.marketwatch.com/Multimedia/2018/11/29/Photos/NS/M...

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#13

Post by mrep » Wed, Dec 11, 2019, 2:58 PM UTC

rjkennedy98 wrote: post #6

try-perforate wrote: post #4

Read an idea in American Affairs in support of taxing buybacks. The logic goes that if all companies have a fiduciary duty to shareholders because the market is the most efficient capital allocator, AND all companies are giving their cash back to shareholders, THEN it must be true that the market can not figure out how to efficiently allocate this $1T of capital. Thus, the government should have “next dibs” for items…

At the very minimum it should be taxed the same as dividends. Essentially tax buybacks are a tax loophole for giving money back to the shareholder.

No it's not as investors will have to pay taxes on any gains when they sell there stock which should happen in proportion to the buyback all else being equal. Buybacks just allow them to defer realizing those gains and paying taxes on them until they finally decide to sell.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#14

Post by entropicdrifter » Wed, Dec 11, 2019, 2:58 PM UTC

pc86 wrote: post #9

rjkennedy98 wrote: post #6

Earlier quoted context omitted.

At the very minimum it should be taxed the same as dividends. Essentially tax buybacks are a tax loophole for giving money back to the shareholder.

What would this look like from a practical standpoint, though? Dividends are a taxable event because you're giving someone money. In a buyback, the value of the stock simply goes up, which isn't a taxable event. How do you determine the cost basis on something like that? If there's a stock buyback over the course of 6 months, how do you determine which proportion of the price increase is due to the buyback, as oppose…

You tax the buyback itself, right? You tax the money the company is spending on its own stock. That's the only step of the transaction where money is changing hands

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#15

Post by Junk_Collector » Wed, Dec 11, 2019, 2:59 PM UTC

nabla9 wrote: post #3

> drowning out real investment. The conclusion that buybacks are alternative for real investments is wrong. The aggregate change between R&D and capex versus buybacks and dividends is not just some arbitrary decision. ROI from R&D and investments is slowing down for various reasons. Instead of investing more without reason to do so, companies should give profits to owners or pay off excess debt. There is wrong and ri…

I've never understood this take. Buybacks cannot be analogous to dividends because they require you to relinquish your stake in the company to realize the gains.

It's a public buyout offer, not profit sharing.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#16

Post by ENOTTY » Wed, Dec 11, 2019, 2:59 PM UTC

try-perforate wrote: post #4

Read an idea in American Affairs in support of taxing buybacks. The logic goes that if all companies have a fiduciary duty to shareholders because the market is the most efficient capital allocator, AND all companies are giving their cash back to shareholders, THEN it must be true that the market can not figure out how to efficiently allocate this $1T of capital. Thus, the government should have “next dibs” for items…

Wouldn't buybacks be taxed when the investor cashes out?

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#17

Post by baronmunchausen » Wed, Dec 11, 2019, 2:59 PM UTC

Junk_Collector wrote: post #15

nabla9 wrote: post #3

> drowning out real investment. The conclusion that buybacks are alternative for real investments is wrong. The aggregate change between R&D and capex versus buybacks and dividends is not just some arbitrary decision. ROI from R&D and investments is slowing down for various reasons. Instead of investing more without reason to do so, companies should give profits to owners or pay off excess debt. There is wrong and ri…

I've never understood this take. Buybacks cannot be analogous to dividends because they require you to relinquish your stake in the company to realize the gains. It's a public buyout offer, not profit sharing.

+1 million

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#18

Post by stopads » Wed, Dec 11, 2019, 3:00 PM UTC

nabla9 wrote: post #3

> drowning out real investment. The conclusion that buybacks are alternative for real investments is wrong. The aggregate change between R&D and capex versus buybacks and dividends is not just some arbitrary decision. ROI from R&D and investments is slowing down for various reasons. Instead of investing more without reason to do so, companies should give profits to owners or pay off excess debt. There is wrong and ri…

It is drowning out real investment, this conclusion is correct because the companies themselves are saying so in their statements. Some companies are taking on huge debt to keep up in the buyback races despite having bad products that are losing market share. Oracle is probably the biggest example of this buyback insanity via debt, but there are many other companies doing the same thing.

https://www.cnbc.com/2019/12/05/oracle-shows-buybacks-can-go...

Other companies have committed in their financial statements to "returning 100% of free cash flow to investors via buybacks and dividends", so they are actually committing to not invest in the company at all regardless of how much money they make. Chevron and Texas Instruments are two big examples of this, there are dozens of other companies with similar buyback first strategies.

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#19

Post by jvanderbot » Wed, Dec 11, 2019, 3:00 PM UTC

nabla9 wrote: post #3

> drowning out real investment. The conclusion that buybacks are alternative for real investments is wrong. The aggregate change between R&D and capex versus buybacks and dividends is not just some arbitrary decision. ROI from R&D and investments is slowing down for various reasons. Instead of investing more without reason to do so, companies should give profits to owners or pay off excess debt. There is wrong and ri…

OK. You're probably right. I still hate it. There's not a viable explanation that doesn't make it seem shortsighted and greedy (personally, and possibly due to HN filter).

Why is R&D not a good investment suddenly? Shortage of tech workers (blah blah) ...?

Re: S&P 500 Buybacks Now Outpace All R&D Spending in the US

#20

Post by jjoonathan » Wed, Dec 11, 2019, 3:00 PM UTC

mrep wrote: post #8

try-perforate wrote: post #4

Read an idea in American Affairs in support of taxing buybacks. The logic goes that if all companies have a fiduciary duty to shareholders because the market is the most efficient capital allocator, AND all companies are giving their cash back to shareholders, THEN it must be true that the market can not figure out how to efficiently allocate this $1T of capital. Thus, the government should have “next dibs” for items…

The government already gets first dibs through corporate income taxes. Buybacks aren't deductible from that.

Isn't corporate income tax the one that can be dodged by just shifting profit offshore? Or did they close that loophole?