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

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

#41

Post by ChrisLomont »

papito wrote: post #24
mrep wrote: post #8

Earlier quoted context omitted.

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

Yeah, Amazon paid $0 last year.

Since 2019 is not yet filed I assume you mean 2018 as "last year".

Here's Amazon's SEC filing for 2018 [1]. They paid 1+ billion on income taxes (page 37) on 11B in profits. They paid billions more in property taxes and other regulatory taxes.

Note that annual taxes also are affected by previous year issues. This is why from the same document, same page, you see them paying 1.4B on 3.9B of profit.

So getting upset about a year of no taxes with profits, when it truly does happen, is missing important nuance on what companies do pay. Check surrounding years, and read the SEC filings to see the reasons, which I've always found to be quite reasonable. It's not as bad as the pop press would have you believe when they cherry pick the outliers from one year or another.

And the pop press usually ignores all the other taxes that corporations also pay, focusing solely on income taxes, as if that were the only tax.

[1] https://ir.aboutamazon.com/static-files/ce3b13a9-4bf1-4388-8...

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

#42

Post by sigstoat »

entropicdrifter wrote: post #14
pc86 wrote: post #9

Earlier quoted context omitted.

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

you just taxed the folks selling it at the same time.

does the company get a tax break if it buys its shares back at less than it sold them for?

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

#43

Post by kolbe »

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…

Here's the problem: you're asking governments to have first dibs over the actual owners of the capital. The whole reason that companies are doing buybacks is that they cannot turn all of their money from $1 into $1.05 anymore, and they give it back to shareholders to go figure out how to get returns. When the government uses it, they turn $1 into somewhere between -$0.20 (wars) and 0.10 (infrastructure with myriad bribes/kickbacks along the way). I don't think it's a good idea to encourage the later over having people who stand to experience the consequences of making bad investments (the rightful owners of the money) make investing decisions.

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

#44

Post by mrfusion »

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…

I’m confused. Companies are using profits for the buy backs. Corporate profits are already taxed.

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

#47

Post by cma »

usaar333 wrote: post #36
twoodfin wrote: post #11

Earlier quoted context omitted.

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

Basically, which is very advantageous, because you continue to reinvest otherwise paid taxes. To say nothing of the fact that the stock might never be sold. Or the fact that capital losses can offset a gain from a buyback, unlike dividends.

So it’s like a 401K with no contribution limit, but taxed twice (second time at cap gains rate). Too good to be true for billionaires.

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

#48

Post by foobarian »

bob33212 wrote: post #30
jvanderbot wrote: post #19

Earlier quoted context omitted.

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.

Sadly both of the reasons you listed ring true.

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

#49

Post by anotherman554 »

twoodfin wrote: post #11
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.

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

No because inheritances can have stepped up basis. It may never be taxed.

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

#50

Post by sigstoat »

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) ...?

you’re on a board very nearly dedicated to startups.

perhaps the s&p500 is no longer a good place to do r&d, compared to smaller, vc-backed startups. if they see significantly reduced gains from r&d compared to smaller companies then we should be crying years of joy that money is flowing out of them so it can be reinvested into smaller firms.

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