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Except if you taxed those buybacks, they wouldn't be happening, or would only be happening at a much smaller volume. BBs are a way for companies to return money
by this_user 6y ago
Except if you taxed those buybacks, they wouldn't be happening, or would only be happening at a much smaller volume. BBs are a way for companies to return money to investors when they don't know what else to do with their cash. This is how capitalism is supposed to work by optimising the allocation of capital.
What you want to do is create an artificial incentive for not returning the capital, which will lead to its suboptimal allocation. Companies will either sit on their cash, or they will be putting it into projects they would otherwise not be doing.
- mikestew 6y agoBBs are a way for companies to return money to investors when they don't know what else to do with their cash. That’s called a “dividend”. A dividend is taxed, however. I’ll leave the rest as an exercise for the reader. What you want to do is create an artificial incentive for not returning the capital, which will lead to its suboptimal allocation. I truly don’t know what to make of this comment. On the one hand, we are all being mansplained on how stock buy-backs works, yet not one mention of the word “dividend”.
- fennecfoxen 6y ago> A dividend is taxed, however. You know what else is taxed? When a company buys back stock, reducing the number of shares outstanding so that each share represents more of the ongoing business, thus sending its stock price higher. The tax on this is called a "capital gains tax," perhaps you've heard of it?