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

#121

Post by bsanr2 » Wed, Dec 11, 2019, 4:21 PM UTC

xt00 wrote: post #95

mrep wrote: post #80

Earlier quoted context omitted.

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).

The companies are in many cases doing things like this: 1) their revenue they classify is centered in a different country like Ireland 2) they setup a massive line of credit with an international bank 3) they take out massive loans against the money they have “overseas” that is not taxed 4) they then pay the buybacks and other things to their investors with that loaned money in US 5) they then pay back the bank at th…

What I don't understand about this is... Why can't I partake? If my employer is based out of these havens for tax purposes, why can't they pay "me" by paying into the bank account of the foreign on-paper-only company I own, whose line of credit with a foreign bank I then use for my own expenses?

I feel like this must be against the law somehow, but I don't quite understand where the line is.

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

#122

Post by code_sloth » Wed, Dec 11, 2019, 4:23 PM UTC

crazygringo wrote: post #55

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…

That doesn't make any sense. The market is the most efficient capital allocator because shareholders are the market, not companies. Companies are giving their cash back to shareholders because each individual company thinks their shareholders can better allocate the cash, rather than the companies themselves. This is equally true for both buybacks and dividends. This is because most companies have no wish to operate…

> Companies are giving their cash back to shareholders because each individual company thinks their shareholders can better allocate the cash, rather than the companies themselves.

_This_ doesn't make any sense. Companies don't think. They're legal entities that are controlled by a small group of people. This group of people can decide that they would prefer to do share buybacks to meet their own performance targets.

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

#123

Post by bsanr2 » Wed, Dec 11, 2019, 4:23 PM UTC

rayiner wrote: post #99

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.

Corporations are paying taxes. US corporate tax receipts as a percentage of GDP are a tick higher than the OECD average. Also, it’s not the “ultra wealthy” primarily benefitting from these buybacks. Most corporate equity is owned by the bottom 99% and pension funds.[1] (Someone with a $5 million retirement account may be very comfortable, but they’re not hiding their money in offshore accounts.) [1] Most corporate eq…

What's the rate of pension funds that have actually paid out their initial promise? How many have ceased to exist?

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

#124

Post by [deleted] » Wed, Dec 11, 2019, 4:24 PM UTC

asdfasgasdgasdg wrote: post #100

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…

Doesn't one require the other? You have to buy back the stock from someone. That someone is necessarily divesting themselves of the stock as a result.

[deleted]

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

#125

Post by jcfrei » Wed, Dec 11, 2019, 4:24 PM UTC

aczerepinski wrote: post #104

crazygringo wrote: post #55

Earlier quoted context omitted.

That doesn't make any sense. The market is the most efficient capital allocator because shareholders are the market, not companies. Companies are giving their cash back to shareholders because each individual company thinks their shareholders can better allocate the cash, rather than the companies themselves. This is equally true for both buybacks and dividends. This is because most companies have no wish to operate…

Buying back stock only creates value for shareholders if the stock is trading for less than its intrinsic value. Above that price buybacks destroy shareholder value. Executives are doing this to meet performance targets and get bonuses. Not to allocate capital efficiently.

I don't think I can follow your argument. What's intrinsic value? The market is supposed to arrive at a fair value for a stock (and there's no reason to assume it doesn't because that would create arbitrage opportunities). If you buyback at the fair value no shareholder value is created or destroyed, the only change is in the ownership of the assets and future dividends.

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

#126

Post by take_a_breath » Wed, Dec 11, 2019, 4:24 PM UTC

crazygringo wrote: post #98

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.

The largest beneficiary of buybacks isn't the ultra-wealthy. It's retirees. It's grandma: "Of the $22.8 trillion in stock outstanding... retirement accounts owned roughly 37%, the most of any type of holder." [1] [1] https://www.businessinsider.com/who-actually-owns-the-stock-...

Your data does not say what you are claiming it says. It is possible (or even probable) for the ultra-wealthy to have retirement accounts. Once we admit that, then the obvious question becomes: Who do you think owns most of the money in those retirement accounts, the rich or the poor?

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

#127

Post by CharlesColeman » Wed, Dec 11, 2019, 4:28 PM UTC

bsanr2 wrote: post #121

xt00 wrote: post #95

Earlier quoted context omitted.

The companies are in many cases doing things like this: 1) their revenue they classify is centered in a different country like Ireland 2) they setup a massive line of credit with an international bank 3) they take out massive loans against the money they have “overseas” that is not taxed 4) they then pay the buybacks and other things to their investors with that loaned money in US 5) they then pay back the bank at th…

What I don't understand about this is... Why can't I partake? If my employer is based out of these havens for tax purposes, why can't they pay "me" by paying into the bank account of the foreign on-paper-only company I own, whose line of credit with a foreign bank I then use for my own expenses? I feel like this must be against the law somehow, but I don't quite understand where the line is.

> What I don't understand about this is... Why can't I partake?

Honestly: because you're not rich and connected enough to have the rules written for to your benefit your naked self-interest. If it was legal and economical for ordinary people to evade taxes, too many people would do it and the country would collapse.

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

#128

Post by useful » Wed, Dec 11, 2019, 4:28 PM UTC

Enginerrrd wrote: post #96

andrewmutz wrote: post #81

Earlier quoted context omitted.

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.

I agree with this entirely. If you tried to tax buybacks, you'd likely be inadvertently taxing a ton of the corporate infrastructure used for administrative purposes. In this case, the buyback is clearly like a tax-advantaged dividend, but with a key difference: it's not liquid. Dividends cross that critical threshold of spendable cash that triggers taxation.

I don't.

If only 20 widgetshares exists in the world and we each have 50% (you have 10 and I have 10) and the market for widgetshares is $200.

Should you be taxed for your theoretical $5.26 gain if I destroy 1 widgetshare but you haven't sold any. Buy backs are no different. You will pay taxes if you sell.

Personally, I think you should pay taxes if you take out a loan using the market value of the shares as collateral. This is where everything starts getting funny and companies and individuals start being able to avoid taxes forever.

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

#129

Post by lotsofpulp » Wed, Dec 11, 2019, 4:29 PM UTC

bsanr2 wrote: post #121

xt00 wrote: post #95

Earlier quoted context omitted.

The companies are in many cases doing things like this: 1) their revenue they classify is centered in a different country like Ireland 2) they setup a massive line of credit with an international bank 3) they take out massive loans against the money they have “overseas” that is not taxed 4) they then pay the buybacks and other things to their investors with that loaned money in US 5) they then pay back the bank at th…

What I don't understand about this is... Why can't I partake? If my employer is based out of these havens for tax purposes, why can't they pay "me" by paying into the bank account of the foreign on-paper-only company I own, whose line of credit with a foreign bank I then use for my own expenses? I feel like this must be against the law somehow, but I don't quite understand where the line is.

It's not against the law at all. It's just expensive because you forgo labor protections, social security contributions, medicare contributions, paying for accountant's time to file for international income, etc.

Wages are taxed differently than a company's income. If you were to distribute the income to yourself every 2 weeks, you'd end up paying all the same taxes as wages.

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

#130

Post by nabla9 » Wed, Dec 11, 2019, 4:29 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.

They are analogous to dividends.

Example: You own 10% of company with market cap $100M. You have $10M.

Dividend scenario: company pays 3% dividend, you get $300k. You have $10M + $300k = $10.3 million.

Buyback scenario: company buys it's own stock for the same amount. You own 10.3% of the company. You have $10.3 million. If you want, you can sell stock to get $300k in cash.

The only difference is that in the buyback scenario you can decide when to sell (and pay taxes).