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Would be nice if the dividends were taxed. But most corporations return cash using stock buy-backs. They are more tax-efficient (read 0 tax). Also dividends are

Would be nice if the dividends were taxed. But most corporations return cash using stock buy-backs. They are more tax-efficient (read 0 tax). Also dividends are often taxed at a lower rate than ordinary income and entirely tax-free in some countries.

whoknowswhat11 5y ago
Distributions of cash are taxed in most cases regardless of how structured. The value of your stock might go up. That is taxed if you sell if for cash.
- satya71 5y ago
  See my earlier comment. Stock gains are often not taxed (retirement accounts, pension funds, etc) . And private company owners can postpone realized gains for a very long time or put it in a trust.
scolson 5y ago
A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Any value increase is completely on paper. The holder of the stock is still taxed when they sell their shares. This is the same concept as you owning a home and someone builds a nicer home next to you. Your home value just went up. But you don't have a cent of that money until you sell your home, and then you are taxed on the gains (unless you roll it into another home, but that's a separate discussion).
- qeternity 5y ago
  > A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
  - itake 5y ago
    trading is zero sum. The investor that sold the share would of sold the same share to another investor. The company isn't buying stock above market price (thus adding value to the system). The company may stock buy back directly from employee's RSUs, which are taxed as income.
    - qeternity 5y ago
      > The company isn't buying stock above market price (thus adding value to the system). That’s not how this works. Where is this focus on “adding value”? What the hell does that even mean? Just take this to its logical conclusion: let’s say a company buys back 100% of its shares. In this case they have returned a ton of capital to investors very tax efficiently, and price will converge on whatever price the very last seller is willing to sell at.
  - scolson 5y ago
    Buyback programs are at the then-current publicly traded rates. They aren't generally at some magical premium, or else the whole trading price of the stock would go up even more. Most people selling their shares in a company do not know who is on the buying side, and that is generally the case here. This goes for retail and institutional investors. And the buy-back programs are done slowly to avoid slippage, which can make it even harder to track down in the moment. Someone who wanted to sell was selling anyway. They don't profit any more than their gains (or losses) already covered. The people who get "value" are the ones who did NOT sell their shares, and their "value" is only realized down the road when they do eventually sell.
    - qeternity 5y ago
      I appreciate the lesson, I spent my whole career as a hedge fund trader so I’m familiar. I’m not sure what this has to do with anything? Why does it have to be at a premium? What in gods green earth are you on about? What difference does it make if you know or don’t know who the buyer is?? Those who want to sell can sell (buybacks are programmatic) and those who don’t can benefit from appreciation.
- rytill 5y ago
  I don't think it's accurate to say "you don't have a cent of that money until you sell your home". Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets.
  - nickff 5y ago
    >"I don't think it's accurate to say "you don't have a cent of that money until you sell your home"." That's a bit different, as you generally reap some ongoing benefits from owning a home, such as an income stream (rent) or place to live (savings on rent, which aren't usually taxed), which you don't get from owning stocks (other dividends, which are taxed, and the benefit of voting if they're voting shares). >"Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets." We generally don't tax things that have the potential to increase borrowing power (because of that thing alone); we don't tax high credit scores or educational status/attainment, or changes in either.
bpodgursky 5y ago
>. They are more tax-efficient (read 0 tax). It's not 0 tax... it's cap gains (short or long) whenever the shareholder sells.
- satya71 5y ago
  It’s not 0 tax for personal after-tax accounts, not for PE, hedge funds, 401k accounts, IRAs, so and so forth. Guess where most of the stocks are actually held. I have 0 in my cash account, lots in my 401k account.
  - bpodgursky 5y ago
    Hedge funds don't spend money... at the end of the day, a human being who wants to reap the benefits of this investment will need to realize gains and pay tax. Or they could commit to just staring at imaginary numbers in a bank account forever I guess, but then you start to ask existential questions about what inequality actually means if nobody ever spends money. And yes, 401ks are tax-advantaged... that's the point of the account. It would be equivalently tax-advantaged if companies were paying dividends instead of running buybacks.

whoknowswhat11 5y ago

Distributions of cash are taxed in most cases regardless of how structured. The value of your stock might go up. That is taxed if you sell if for cash.

satya71 5y ago
See my earlier comment. Stock gains are often not taxed (retirement accounts, pension funds, etc) . And private company owners can postpone realized gains for a very long time or put it in a trust.

scolson 5y ago

A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Any value increase is completely on paper. The holder of the stock is still taxed when they sell their shares. This is the same concept as you owning a home and someone builds a nicer home next to you. Your home value just went up. But you don't have a cent of that money until you sell your home, and then you are taxed on the gains (unless you roll it into another home, but that's a separate discussion).

qeternity 5y ago
> A stock buy-back increases the stock's value through scarcity. It does not actually "return cash" in any immediate sense. Who do you think they are buying the shares from? It literally directly puts money in the pockets of investors.
- itake 5y ago
  trading is zero sum. The investor that sold the share would of sold the same share to another investor. The company isn't buying stock above market price (thus adding value to the system). The company may stock buy back directly from employee's RSUs, which are taxed as income.
  - qeternity 5y ago
    > The company isn't buying stock above market price (thus adding value to the system). That’s not how this works. Where is this focus on “adding value”? What the hell does that even mean? Just take this to its logical conclusion: let’s say a company buys back 100% of its shares. In this case they have returned a ton of capital to investors very tax efficiently, and price will converge on whatever price the very last seller is willing to sell at.
- scolson 5y ago
  Buyback programs are at the then-current publicly traded rates. They aren't generally at some magical premium, or else the whole trading price of the stock would go up even more. Most people selling their shares in a company do not know who is on the buying side, and that is generally the case here. This goes for retail and institutional investors. And the buy-back programs are done slowly to avoid slippage, which can make it even harder to track down in the moment. Someone who wanted to sell was selling anyway. They don't profit any more than their gains (or losses) already covered. The people who get "value" are the ones who did NOT sell their shares, and their "value" is only realized down the road when they do eventually sell.
  - qeternity 5y ago
    I appreciate the lesson, I spent my whole career as a hedge fund trader so I’m familiar. I’m not sure what this has to do with anything? Why does it have to be at a premium? What in gods green earth are you on about? What difference does it make if you know or don’t know who the buyer is?? Those who want to sell can sell (buybacks are programmatic) and those who don’t can benefit from appreciation.
rytill 5y ago
I don't think it's accurate to say "you don't have a cent of that money until you sell your home". Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets.
- nickff 5y ago
  >"I don't think it's accurate to say "you don't have a cent of that money until you sell your home"." That's a bit different, as you generally reap some ongoing benefits from owning a home, such as an income stream (rent) or place to live (savings on rent, which aren't usually taxed), which you don't get from owning stocks (other dividends, which are taxed, and the benefit of voting if they're voting shares). >"Nobody has anything valuable until they transfer some cash to receive that thing. The potential to transfer X for Y is valuable. Not to mention borrowing against one's assets." We generally don't tax things that have the potential to increase borrowing power (because of that thing alone); we don't tax high credit scores or educational status/attainment, or changes in either.

bpodgursky 5y ago

>. They are more tax-efficient (read 0 tax). It's not 0 tax... it's cap gains (short or long) whenever the shareholder sells.

satya71 5y ago
It’s not 0 tax for personal after-tax accounts, not for PE, hedge funds, 401k accounts, IRAs, so and so forth. Guess where most of the stocks are actually held. I have 0 in my cash account, lots in my 401k account.
- bpodgursky 5y ago
  Hedge funds don't spend money... at the end of the day, a human being who wants to reap the benefits of this investment will need to realize gains and pay tax. Or they could commit to just staring at imaginary numbers in a bank account forever I guess, but then you start to ask existential questions about what inequality actually means if nobody ever spends money. And yes, 401ks are tax-advantaged... that's the point of the account. It would be equivalently tax-advantaged if companies were paying dividends instead of running buybacks.