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

#21

Post by [deleted] » Wed, Dec 11, 2019, 3:00 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…

[deleted]

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

#22

Post by coldcode » Wed, Dec 11, 2019, 3:02 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…

Companies (often ones with business both in and outside the US) generally borrow money to pay for buybacks (Apple as an example). So corporate debt goes up, paid out of future earnings if they exist, to keep the stock price up and keep shareholders happy. But it is not making business value which ultimately is what business exists for and should reflect in the stock price. So the price is propped up for some time period based on distant profits that may never happen, instead of reflecting company value improvements in the more near future.

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

#23

Post by [deleted] » Wed, Dec 11, 2019, 3:04 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…

[deleted]

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

#24

Post by papito » Wed, Dec 11, 2019, 3:04 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.

Yeah, Amazon paid $0 last year.

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

#25

Post by ainiriand » Wed, Dec 11, 2019, 3:07 PM UTC

cs702 wrote: post #12

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 d…

Delicious board bonuses.

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

#26

Post by jshaqaw » Wed, Dec 11, 2019, 3:08 PM UTC

Companies that can productively reinvest capital at attractive rates of return get a strong valuation premium in the market. Every company would love to be in this position. Companies that can make a compelling case to shareholders for long-term investments get to make long-term investments and like Amazon often get super valuation premiums.

If a company can't reinvest capital at attractive rates then returning it to shareholders is the best option. Forcing companies to invest in unattractive investments is the path to a zombie economy. I can't count the number of companies that should have returned money rather than going on some unprofitable growth binge.

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

#27

Post by SifJar » Wed, Dec 11, 2019, 3:08 PM UTC

ENOTTY wrote: post #16

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?

The buybacks themselves would also presumably result in capital gains for the sell side (ideally) & thus taxation?

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

#28

Post by hew » Wed, Dec 11, 2019, 3:09 PM UTC

Intrinsic value of the company > devaluing cash pile

(Presenting as "record stock growth" but in reality just trying to hold even value.)

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

#29

Post by [deleted] » Wed, Dec 11, 2019, 3:09 PM UTC

cs702 wrote: post #12

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 d…

[deleted]

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

#30

Post by bob33212 » Wed, Dec 11, 2019, 3:10 PM UTC

jvanderbot wrote: post #19

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) ...?

There are a lot of different reasons.

The cynical take is that the time to ROI is too long. If it is going to take 10 years to turn a profit the executives do not want to pull the trigger on that because they will be out the door in 5 and never get the payments.

Another possibility is that all the low hanging fruit is gone. So the marginal improvements do not return large financial gains.