Time to Ban Stock Repurchases • Hacker News Board

Re: Time to Ban Stock Repurchases

#21

Post by majormajor » Tue, Mar 31, 2020, 2:31 AM UTC

nemothekid wrote: post #20

majormajor wrote: post #11

Earlier quoted context omitted.

Neither "double-taxed" nor "already-taxed" make sense to me as phrases. From the "regular person" side of the world - dividends vs capital gains vs estate tax, how I would've loved to have such problems for most of my life - I've always seen it as transactions that are taxed, not dollars. I pay income tax. I pay sales tax. That's about it (property tax would be something entirely different, but requires owning real p…

>"but how is it not "double tax" by the same logic?" It's not really the same logic. If I own 100% of the shares of company A, and I make a profit of $100, I have to pay a tax on that profit. Now I have $75. Now I want to use that money to buy an XBox, so I move that money from my company account to my bank account (again, I own the company, the money is already mine), but I have to pay another "income" tax. This is…

The single-100%-owner scenario seems like a meaningfully different case here.

But: no, I wouldn't lobby that I should be exempt from sales tax just becaues it's "double taxation." I certainly don't think tax is something to always be avoided when possible, I think it's a tool of government, and that eliminating variou taxes is rarely discussed for truly useful reasons vs just individual selfishness. (On that note: if I were going to argue against sales tax it would be on grounds of regressiveness. It's not something that has much of a noticable impact on my own lifestyle, though.)

Re: Time to Ban Stock Repurchases

#22

Post by danaris » Tue, Mar 31, 2020, 2:31 AM UTC

nemothekid wrote: post #20

majormajor wrote: post #11

Earlier quoted context omitted.

Neither "double-taxed" nor "already-taxed" make sense to me as phrases. From the "regular person" side of the world - dividends vs capital gains vs estate tax, how I would've loved to have such problems for most of my life - I've always seen it as transactions that are taxed, not dollars. I pay income tax. I pay sales tax. That's about it (property tax would be something entirely different, but requires owning real p…

>"but how is it not "double tax" by the same logic?" It's not really the same logic. If I own 100% of the shares of company A, and I make a profit of $100, I have to pay a tax on that profit. Now I have $75. Now I want to use that money to buy an XBox, so I move that money from my company account to my bank account (again, I own the company, the money is already mine), but I have to pay another "income" tax. This is…

...Are you saying that if you own shares of company A, the value of those shares is extracted from the company's bank account?

That...doesn't sound right. I mean, I know I'm not really much of an investor, but my understanding is it works more like this:

If I own 100% of the shares of company A, and the company makes a profit of $100, the company pays a tax on that profit, then has $75 in its bank account.

Separately, when the company reports those earnings, its stock price rises 5%. Now, if I want to realize the value of my stock appreciation, I have to sell shares of stock, which is a completely separate, taxed, transaction.

I can only transfer money from company A's bank account to my own because I own 100% of the shares, and control the entire company. I also know that treating the company like my own personal piggy bank is frowned upon (at least by people with scruples and sense), and the much more reasonable thing to do is have the company pay me a salary out of its profits. Which is another, separate, taxed, transaction. Which also makes perfect sense, because in the general case where I am not the only employee, payroll taxes are a perfectly reasonable thing, and in the more specific case where I am, I'm paying for the protection of having the corporation to take liability.

Re: Time to Ban Stock Repurchases

#23

Post by zimbu668 » Tue, Mar 31, 2020, 2:50 AM UTC

danaris wrote: post #22

nemothekid wrote: post #20

Earlier quoted context omitted.

>"but how is it not "double tax" by the same logic?" It's not really the same logic. If I own 100% of the shares of company A, and I make a profit of $100, I have to pay a tax on that profit. Now I have $75. Now I want to use that money to buy an XBox, so I move that money from my company account to my bank account (again, I own the company, the money is already mine), but I have to pay another "income" tax. This is…

...Are you saying that if you own shares of company A, the value of those shares is extracted from the company's bank account ? That...doesn't sound right. I mean, I know I'm not really much of an investor, but my understanding is it works more like this: If I own 100% of the shares of company A, and the company makes a profit of $100, the company pays a tax on that profit, then has $75 in its bank account. Separatel…

It's called a dividend, it's not a piggy bank:

https://en.wikipedia.org/wiki/Dividend

Re: Time to Ban Stock Repurchases

#24

Post by alasdair_ » Tue, Mar 31, 2020, 3:17 AM UTC

vearwhershuh wrote: post #17

alasdair_ wrote: post #7

Earlier quoted context omitted.

Dividends are charged at 0%, 15% or 20% depending on capital gains tax brackets. ( https://www.nerdwallet.com/blog/taxes/dividend-tax-rate/ ) The reason that stock repurchases are better than dividends for most tax purposes is that the owner can elect to sell or not sell their stock rather than rely on the forced timing of a dividend.

I wasn't clear: they should be tax advantaged, particularly for companies, relative to capital gains. If you tax capital gains at the marginal tax rate + 10%, they are unattractive in relative terms in most cases, even when deferred. And then letting companies deduct them against their profits encourages the companies to pay out profits (and to attempt to be profitable.)

I wasn’t sure if you were aware of this already or not but capital gains are not taxed at a marginal tax rate plus anything, they are taxed at 0%, 15% or 20%.

However, it’s worth noting that in terms of market volume, most entities that buy shares (like pension funds) don’t pay any taxes on their dividends or stock sales, so your scheme won’t make dividends attractive to these entities and indeed would likely raise the price, making them even less interesting to those entities.

This is why pension funds don’t buy (many) munis or TIPS etc. - they gain nothing from the tax advantages.

Re: Time to Ban Stock Repurchases

#25

Post by nemothekid » Tue, Mar 31, 2020, 3:23 AM UTC

danaris wrote: post #22

nemothekid wrote: post #20

Earlier quoted context omitted.

>"but how is it not "double tax" by the same logic?" It's not really the same logic. If I own 100% of the shares of company A, and I make a profit of $100, I have to pay a tax on that profit. Now I have $75. Now I want to use that money to buy an XBox, so I move that money from my company account to my bank account (again, I own the company, the money is already mine), but I have to pay another "income" tax. This is…

...Are you saying that if you own shares of company A, the value of those shares is extracted from the company's bank account ? That...doesn't sound right. I mean, I know I'm not really much of an investor, but my understanding is it works more like this: If I own 100% of the shares of company A, and the company makes a profit of $100, the company pays a tax on that profit, then has $75 in its bank account. Separatel…

>Are you saying that if you own shares of company A, the value of those shares is extracted from the company's bank account?

Like the sibling comment said, thats how stocks are supposed to work. The entire reason stocks have value is because you were entitled to a dividend. So that $75 would be shared among the people who own the stock.

Now if the stock entitles you to a dividend of $5/year of the company's profits, you then might say that the company's stock is with $25 (just an example). If you think the company may become more profitable, and start paying $6, you may decide the stock is worth $26, and the inverse is true as well. Transferring that ownership of the stock is taxed, naturally.

Now we now live in a world where the largest companies don't pay a dividend, and I'm not sure how much "potential dividend revenue" factors into company valuation, but, as I understand it, this is the "backbone" of how stocks work.

>and the much more reasonable thing to do is have the company pay me a salary out of its profits. Which is another, separate, taxed, transaction.

This is taxed separately however. There is no "double-tax" here as payments to employees aren't considered the company's profit. When the company pays its employees, it's taxed once (payroll tax). When the company pays it's owners it's taxed twice (Corporate tax, then dividend tax).

Re: Time to Ban Stock Repurchases

#26

Post by nemothekid » Tue, Mar 31, 2020, 3:28 AM UTC

majormajor wrote: post #21

nemothekid wrote: post #20

Earlier quoted context omitted.

>"but how is it not "double tax" by the same logic?" It's not really the same logic. If I own 100% of the shares of company A, and I make a profit of $100, I have to pay a tax on that profit. Now I have $75. Now I want to use that money to buy an XBox, so I move that money from my company account to my bank account (again, I own the company, the money is already mine), but I have to pay another "income" tax. This is…

The single-100%-owner scenario seems like a meaningfully different case here. But: no, I wouldn't lobby that I should be exempt from sales tax just becaues it's "double taxation." I certainly don't think tax is something to always be avoided when possible, I think it's a tool of government, and that eliminating variou taxes is rarely discussed for truly useful reasons vs just individual selfishness. (On that note: if…

>The single-100%-owner scenario seems like a meaningfully different case here.

It's not. The way public companies were designed to work, in theory, is the "owners" get a proportional slice of the profits of the company. That's what a dividend is. I simply described the simplest scenario - if it feels wrong to you, you should consider why that is so.

>But: no, I wouldn't lobby that I should be exempt from sales tax just because it's "double taxation."

I agree here, but in the case of the corporate tax, I think it should be eliminated because it just incentives companies to game the tax system and creates these awful headlines where "LARGE COMPANY PAID $0 IN TAXES" which is almost never accurate.