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IBM may or may not be a good example, but I think the overall critique holds here. Stock buy backs weren't a thing until a SEC rule change in the 80's, this is

IBM may or may not be a good example, but I think the overall critique holds here. Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market. Home Depot could have given their employees massive raises with the amount they've spent on buybacks (15 billion in buybacks in February 2019 alone). With ~400,000 employees, that could be a $37,500 bonus to every employee for the year... The scale of that is breathtaking - and instead of spreading the love around, it goes to the shareholders and C level alone.

dmoy 6y ago
I still don't get how a stock buyback is functionally any different from a dividend. Replace dividend with buyback or v versa and everything else is true, except for forced dividend tax.
londons_explore 6y ago
> Home Depot could have given their employees massive raises with the amount they've spent on buybacks Each company can decide how they pay their employees. If Home Depot had wanted to pay their employees with stock options, they would have been free to do so. It turns out it usually works out best for both the company and the employees to receive a fixed amount of cash. If the employee wants to use the cash to buy shares or options, that's up to them.
colinmhayes 6y ago
>Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market. Buybacks and dividends are essentially equivalent. This comment shows a distinct lack of understanding. Of course home depot could return their profits to employees, but then it wouldn't be a business. Home depot's sole reason for existing is to return money to shareholders. If they don't do that leadership would be fired.
- godtoldmetodoit 6y ago
  Ahh the old "shareholders are the only thing that matters" argument. Buybacks and dividends are not equivalent, buybacks are tax advantaged in ways that dividends are not. We've allowed numerous companies to get to a size where they are "too big to fail". They know they are too big to fail, and they get to take advantage of this position. They get to go into near unlimited amounts of debt to finance buybacks to enrich shareholders and C levels, and when times are good this all works out. When the economy enters a downturn and they don't have cash on hand to weather the storm, they know the Fed will be there to bail them out. Something is fundamentally broken here. You can reasonably argue whether it is with the buybacks, or the bailout, but this system is fucked. For more in depth reporting on this, I highly recommend checking out Matt Taibbi. https://taibbi.substack.com/p/resetting-the-bomb https://taibbi.substack.com/p/resetting-the-bomb
  - jonfw 6y ago
    Companies like Home Depot and IBM aren't usually considered 'too big to fail', so these aren't really great examples for the point you're trying to make.
  - WanderPanda 6y ago
    Its not that buybacks have a tax advantage, dividendes rather have a tax disadvantage
  - throw0101a 6y ago
    > Buybacks and dividends are not equivalent, buybacks are tax advantaged in ways that dividends are not. [citation needed; location specific] Here in Canada both capital gains and dividends of Canadian companies have special tax treatments. Also remember: in both cases the money leaving the company are profits, which are (should be?) taxed at the corporate tax rate. So the government should be/is getting a cut already. The recipient of the money (either buyback or dividend) is then getting taxed again(?) potentially.

dmoy 6y ago

I still don't get how a stock buyback is functionally any different from a dividend. Replace dividend with buyback or v versa and everything else is true, except for forced dividend tax.

londons_explore 6y ago

> Home Depot could have given their employees massive raises with the amount they've spent on buybacks Each company can decide how they pay their employees. If Home Depot had wanted to pay their employees with stock options, they would have been free to do so. It turns out it usually works out best for both the company and the employees to receive a fixed amount of cash. If the employee wants to use the cash to buy shares or options, that's up to them.

colinmhayes 6y ago

>Stock buy backs weren't a thing until a SEC rule change in the 80's, this is a relatively new phenomenon and not intrinsic to a functioning market. Buybacks and dividends are essentially equivalent. This comment shows a distinct lack of understanding. Of course home depot could return their profits to employees, but then it wouldn't be a business. Home depot's sole reason for existing is to return money to shareholders. If they don't do that leadership would be fired.

godtoldmetodoit 6y ago
Ahh the old "shareholders are the only thing that matters" argument. Buybacks and dividends are not equivalent, buybacks are tax advantaged in ways that dividends are not. We've allowed numerous companies to get to a size where they are "too big to fail". They know they are too big to fail, and they get to take advantage of this position. They get to go into near unlimited amounts of debt to finance buybacks to enrich shareholders and C levels, and when times are good this all works out. When the economy enters a downturn and they don't have cash on hand to weather the storm, they know the Fed will be there to bail them out. Something is fundamentally broken here. You can reasonably argue whether it is with the buybacks, or the bailout, but this system is fucked. For more in depth reporting on this, I highly recommend checking out Matt Taibbi. https://taibbi.substack.com/p/resetting-the-bomb https://taibbi.substack.com/p/resetting-the-bomb
- jonfw 6y ago
  Companies like Home Depot and IBM aren't usually considered 'too big to fail', so these aren't really great examples for the point you're trying to make.
- WanderPanda 6y ago
  Its not that buybacks have a tax advantage, dividendes rather have a tax disadvantage
- throw0101a 6y ago
  > Buybacks and dividends are not equivalent, buybacks are tax advantaged in ways that dividends are not. [citation needed; location specific] Here in Canada both capital gains and dividends of Canadian companies have special tax treatments. Also remember: in both cases the money leaving the company are profits, which are (should be?) taxed at the corporate tax rate. So the government should be/is getting a cut already. The recipient of the money (either buyback or dividend) is then getting taxed again(?) potentially.