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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

#81

Post by andrewmutz »

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.

This is correct. Stock buybacks are just a way of doing dividends that is more tax advantaged.

The right answer isn't to introduce new forms of buyback taxes with unknown second-order effects (who would you tax? if the shareholder is avoiding dividend taxation, taxing the corporation isn't a great solution). The solution is to just improve the way we tax dividends and capital gains.

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

#82

Post by ISL »

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…

In a buyback, a shareholder must sell shares back to the company. When they do, the shareholder's gains are taxed with capital-gains tax.

Furthermore, whenever shareholders sell shares after the buyback, their shares are generally worth more, so they pay increased capital gains, too.

I don't know which yields more tax revenue in the long run, but buybacks definitely generate some tax income.

The only time I could see a "buyback" influencing share price without taxation is if the buyback has a price cap, and every shareholder believes that the company is worth more, so they don't sell any shares back. This is exceedingly unlikely unless the company is very thinly traded.

From my perspective, the key difference with a buyback is the winnowing of shareholders to those who believe more-strongly in the company's future. With a dividend, every shareholder gets a small amount of cash. With a buyback, some shareholders get cash for their shares, and every other shareholder gets a bigger slice of a company that is worth less (total) money.

If the market is efficient (and it isn't, but it can be) then following a buyback, one would expect the market capitalization of the company to be smaller, as the company has paid out money. After 6 months, if the market cap of the company, plus the funds expended in the buyback, is greater than the inflation-adjusted pre-buyout market-cap, then the company has created shareholder value through some other mechanism (even if the mechanism is pure psychology).

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

#83

Post by Thriptic »

Perhaps I'm being simple, but I don't really understand the problem here. Companies are sitting on too much cash that they don't know what to do with. There is only so much that can productively be spent on R&D. If they don't do something with their cash, investors will start demanding a dividend. Once you start giving dividends it becomes hard to stop giving them. To prevent perpetual dividends, companies perform a buy back which also helps out investors but is a one time thing which doesn't need to be repeated.

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

#84

Post by papito »

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) ...?

Toxic individualism. Me above all. Consequences are for chumps. And it's all so cynical. We see this in politics as well. One last dash pillaging the world for money and power, burning it down to the ground in the process.

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

#85

Post by duelingjello »

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…

$1T would be enough seed money to get an international effort moving to solve climate change using emissions targets, ferrous phytoplankton seeding like IRONEX I and/or kelp blooming/capture/sequestration. Much cheaper than the inflated numbers thrown around as arguments for doing nothing / delaying longer that ignore the $200+ trillion destroyed by doing nothing.

Deny -> extinction

Complain about costs -> extinction

Do nothing -> extinction

Do too little -> mass deaths, world war

Act decisively -> enough of us would likely survive

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

#86

Post by jf22 »

mrep wrote: post #80
tw04 wrote: post #67

Earlier quoted context omitted.

The point is both the companies in question and the ultra-wealthy that are the beneficiaries of the vast majority of these buybacks AREN'T paying taxes, so it's another way for the government to at least attempt to capture the $$ that should already be going into the treasury instead of offshore accounts/subsidiaries/whatever double dutch triple lux tax evasion scheme of the month they're using.

How are they not paying taxes? The people selling their stock to the company in the buyback have to pay taxes on any gains and the people holding onto the stock long term will eventually have to pay taxes on any gains when they finally do sell (they're not going to hold onto a stock until the heat death of the universe so they are going to realize their gains and pay taxes on them at some point).

I believe your comment is referencing normal people paying taxes, where the comment you are replying too is referencing the ultra-wealthy and corporations paying taxes.

The ultra-wealthy and big corporations take advantage of schemes to lower their taxes.

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

#87

Post by tw04 »

mrep wrote: post #80
tw04 wrote: post #67

Earlier quoted context omitted.

The point is both the companies in question and the ultra-wealthy that are the beneficiaries of the vast majority of these buybacks AREN'T paying taxes, so it's another way for the government to at least attempt to capture the $$ that should already be going into the treasury instead of offshore accounts/subsidiaries/whatever double dutch triple lux tax evasion scheme of the month they're using.

How are they not paying taxes? The people selling their stock to the company in the buyback have to pay taxes on any gains and the people holding onto the stock long term will eventually have to pay taxes on any gains when they finally do sell (they're not going to hold onto a stock until the heat death of the universe so they are going to realize their gains and pay taxes on them at some point).

If you have enough money, there are limitless ways to avoid paying taxes that range from illegal to legal but extremely questionable.

https://en.m.wikipedia.org/wiki/Panama_Papers

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

#88

Post by friedman23 »

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.

You understand that when a company does a stock buyback, somebody is selling their stock and that stock they sell is taxed with capital gains?

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

#89

Post by pwinnski »

mrep wrote: post #80
tw04 wrote: post #67

Earlier quoted context omitted.

The point is both the companies in question and the ultra-wealthy that are the beneficiaries of the vast majority of these buybacks AREN'T paying taxes, so it's another way for the government to at least attempt to capture the $$ that should already be going into the treasury instead of offshore accounts/subsidiaries/whatever double dutch triple lux tax evasion scheme of the month they're using.

How are they not paying taxes? The people selling their stock to the company in the buyback have to pay taxes on any gains and the people holding onto the stock long term will eventually have to pay taxes on any gains when they finally do sell (they're not going to hold onto a stock until the heat death of the universe so they are going to realize their gains and pay taxes on them at some point).

That's a great question with a complicated answer. Here's a start: https://www.theatlantic.com/politics/archive/2018/12/rich-pe...

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

#90

Post by partiallypro »

Why do people think that if you pour more money into something like R&D you'll get more results? That isn't how it works. You get diminishing returns on anything, do you not think internal statisticians and economists at the company haven't calculated that?
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