381–390 of 402 posts
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No the shareholders own the company so they “own” the cash either way. Buybacks and dividends return control of the cash back to shareholders so they can allocate it elsewhere.
Not exactly a 10% buy back is not 100% guaranteed the same return as a 10% dividend - and this Ignores the time value of money.
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Nothing in your link shows Amazon paying zero in federal income taxes, except the statement by the author. I trust SEC filings more than this article without supporting evidence. From the SEC filing, on page 22, they talk about US income taxes, and state over the three years covered that they paid out billions with exact amounts in the SEC filing. Care to provide a well sourced link with the zero federal income taxes…
Sure, and I would point my source to be the very SEC filings you linked. Head to page 62. Look at “US Federal” under “Current Taxes” — you will see “(129)”. What the “()” means is that they believe the government owes them 129 Million in tax REFUND. If you count deferred taxes they do owe money, but that’s money that hasn’t left their pockets in that tax year. Hence 0 federal taxes for tax year 2018. That is a hard f…
If you look a few lines lower, you see that same (129) as being owed from foreign taxes. This means it is deferred since it was paid on foreign income to countries for which we likely have tax treaties. You'll also note the federal and international taxes match to under 1% as 563m and 565m, also waiting to be accounted for, to avoid double taxation on the income. It's the same thing as if you worked in one state while living in another, and had to file income taxes in both places: many states let you defer their payment and instead collect from the other state. In this case it's between countries.
>Hence 0 federal taxes for tax year 2018. That is a hard fact.
It's a very misleading fact since the deferment will likely result on them paying federal income tax for 2018. This lack of nuance spreads ignorance to people that don't understand such things are common and legal, and the companies do in fact pay substantial taxes over time.
And this "fact" ignores that this is likely the result, as explained above, of multi-country tax resolution which doesn't happen instantly on US tax time, since other countries have other tax schedules.
Again, he same link you posted showed they paid 1.1B in Federal income taxes the previous year. From year to year taxes vary due to how things roll over, so it's easy to cherry pick a year where they pay zero, but other years they pay quite a lot, sometimes too much, giving them a discount in future years.
This is clear from page 22 of the SEC filing where they state " The U.S. Tax Act enhanced and extended the option to claim accelerated depreciation deductions by allowing full expensing of qualified property, primarily equipment, through 2022. Cash taxes paid (net of refunds) were $412 million, $957 million, and $1.2 billion for 2016, 2017, and 2018. " regarding US federal income taxes.
If you want more details, p62 of [1] shows how the deductions were computed. The majority of the deduction was because of "excess tax benefits from stock-based compensation", which, if you google the phrase, means they overpaid taxes in previous years.
The income totals are also global. The US taxes are only on the US profits, not the global profits. These are broken out in another SEC document mentioned in the one I linked, which makes all the pieces more clear.
I agree that some years net federal income taxes are zero, but almost no company has this happen many years in a row without well deserved reason (such as massive tax loss some other year allowing them to carry forward those benefits).
In short, look at 2018 taxes in a few years, and I bet it won't still be zero. This annual rush to complain about company taxes is usually the same ignorance game, wholly ignoring the underlying reality or going back and offering retraction articles once the original is proven wrong.
[1] https://www.sec.gov/Archives/edgar/data/1018724/000101872419...
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The general principle is that unrealized gains are not taxed, but realized gains are. If you are the seller from whom the company buys back shares, you pay taxes on your gain. If you’re a shareholder who doesn’t sell, you haven’t realized any gain.
Of course I understand that. But why it should be allowed to pay accumulated profits out from the company in a way that the taxes for share owners are deferred? What is the societal good of that?
Taxes for all shareholders are deferred until they sell. Taxes for all retail businesses are deferred until they sell their product. Taxes for all homeowners are deferred until they sell their house. Taxes for all art/collectible investors are deferred until they sell.
It’s a matter of practicality and fairness. (Don’t make someone sell an investment solely to raise the cash to pay taxes on an unrealized gain. Don’t create paperwork that’s unnecessary. The government is a patient investing partner. They’re willing to wait to take their cut when you sell. They can borrow arms-length money in the meantime far more cheaply than you can anyway.)
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Of course I understand that. But why it should be allowed to pay accumulated profits out from the company in a way that the taxes for share owners are deferred? What is the societal good of that?
We generally tax income/profit. Taxes for all shareholders are deferred until they sell. Taxes for all retail businesses are deferred until they sell their product. Taxes for all homeowners are deferred until they sell their house. Taxes for all art/collectible investors are deferred until they sell. It’s a matter of practicality and fairness. (Don’t make someone sell an investment solely to raise the cash to pay tax…
Sorry, but this is plain out wrong. If you are shareholder and get dividends, you pay taxes. Even before you sell.
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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.
Don't stock buybacks basically transfer wealth from the company to the shareholders? The major advantage this has over other means of transferring wealth is that shareholders get to realize their gains with only capital gains tax applied, rather then the much higher dividend tax rate.
No, because the shareholders already have the wealth that is in the company, since stock is a form of wealth. It makes some part of the wealth shareholders already have liquid, though.
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We generally tax income/profit. Taxes for all shareholders are deferred until they sell. Taxes for all retail businesses are deferred until they sell their product. Taxes for all homeowners are deferred until they sell their house. Taxes for all art/collectible investors are deferred until they sell. It’s a matter of practicality and fairness. (Don’t make someone sell an investment solely to raise the cash to pay tax…
> Taxes for all shareholders are deferred until they sell Sorry, but this is plain out wrong. If you are shareholder and get dividends, you pay taxes. Even before you sell.
My apologies if my text was somehow confusing to suggest that I believed shareholders didn’t pay taxes on dividends when received as income.
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That’s only true as long as the buybacks are done using a cash pile. There are a lot of companies that, instead of trying to grow, give dividends to their investors (think utility companies). Their stock prices tend to be pretty stable, since their inherent worths don’t change much. Suppose there is a 100 million dollar power company that instead of giving dividends of 1% per year, they instead bought back stock with…
Right. Buybacks don't raise the shareprice relative to doing nothing, but they do raise the shareprice relative to paying dividends. Maybe it would be better to describe this as "dividends lower the share price".
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> Read an idea in American Affairs in support of taxing buybacks. Honestly, at their most supportable, share buybacks seem to be just dividends in all but name with different tax consequences (i.e. they're a tax dodge). I'd support a law that declared the only legal way to intentionally return cash to shareholders is via dividends, to close the loophole and increase tax revenues. In other cases, they just seem like f…
> In other cases, they just seem like financial engineering employed by CEOs and other interested parties to game their personal job performance metrics. They may seem like that from the outside looking in, but you'd be hard press to find a finance professional who agrees with that assessment. Just imagine how many incorrect notions laymen have about software and realize that the same is true in finance and any other…
Insiders may have expertise, but their insider-ness means one should be skeptical of their perspective for all kinds of reasons (including, but not limited to: self-interest, indoctrination, selection effects, acclimation to industry practice, etc.).
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> The point is that purchasing their own stock is not for the purpose of manipulating its price. The price increase is a natural consequence of there being less outstanding shares. Less outstanding share = one share is worth more. You're literally describing manipulating price by manipulating supply. If companies aren't buying back their stock to make its price go up, why are they buying it? You're contradicting your…
But why? What's the problem with buybacks? Everybody still pay the taxes. They just don't pay the taxes when reinvesting profits into the same company shares until they actually sell the shares. Why would you like to tax those people then? They aren't running away with any cash, they will pay taxes when selling the shares. They just avoid unfair side of the income tax (you pay when you profit but you don't get back o…
I already explained my reasoning for forbidding them.