4 ms·

Fun fact, Stock buybacks were largely illegal until 1982: https://corpgov.law.harvard.edu/2020/10/23/the-dangers-of-buybacks-mitigating-common-pitfalls/#:~:tex

Fun fact, Stock buybacks were largely illegal until 1982: https://corpgov.law.harvard.edu/2020/10/23/the-dangers-of-buybacks-mitigating-common-pitfalls/#:~:text=Buybacks%20were%20largely%20illegal%20until,over%20the%20next%2020%20years https://corpgov.law.harvard.edu/2020/10/23/the-dangers-of-bu....

ls612 5y ago
Stock buybacks are economically equivalent to dividends, with the one exception that they don't trigger a taxable event.
- bin_bash 5y ago
  ...isn't that the reason they were illegal? It seems you're implying not triggering a taxable event isn't important.
  - sokoloff 5y ago
    They don't trigger a taxable event for shareholders who continue to hold the shares. They (obviously) trigger a taxable event (and a more concentrated one) for the sellers of the shares which were bought back.
    - bin_bash 5y ago
      Yes, I realize that but it’s still a major problem. The ultra wealthy never sell their shares for this reason. Instead they opt for taking out endless loans so they don’t pay taxes on their capital gains.
  - mortehu 5y ago
    They also offset shares created for stock based compensation. It's common for the number of outstanding shares to increase even in quarters companies do buybacks, because stock based compensation is bigger than the buybacks. Since newly issued shares are not tax deductible for the owners, you'd basically be paying tax even if net zero capital is returned.
  - mywittyname 5y ago
    I think the primary concern was stock price manipulation. There are some safeguards in place that prevent that from being too big of an issue. The tax-free dividend is more of a modern discovery, I think. Which is why the loophole hasn't been closed yet.
  - initplus 5y ago
    You still pay capital gains tax when you sell the shares. Buybacks don't let investors avoid taxable events, they just allow investors to control when the taxable event happens. Whereas with a dividend, you pay tax immediately when the dividend is issued.
    - bin_bash 5y ago
      > Buybacks don't let investors avoid taxable events. Unless you’re a billionaire of course: https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov...

ls612 5y ago

Stock buybacks are economically equivalent to dividends, with the one exception that they don't trigger a taxable event.

bin_bash 5y ago
...isn't that the reason they were illegal? It seems you're implying not triggering a taxable event isn't important.
- sokoloff 5y ago
  They don't trigger a taxable event for shareholders who continue to hold the shares. They (obviously) trigger a taxable event (and a more concentrated one) for the sellers of the shares which were bought back.
  - bin_bash 5y ago
    Yes, I realize that but it’s still a major problem. The ultra wealthy never sell their shares for this reason. Instead they opt for taking out endless loans so they don’t pay taxes on their capital gains.
- mortehu 5y ago
  They also offset shares created for stock based compensation. It's common for the number of outstanding shares to increase even in quarters companies do buybacks, because stock based compensation is bigger than the buybacks. Since newly issued shares are not tax deductible for the owners, you'd basically be paying tax even if net zero capital is returned.
- mywittyname 5y ago
  I think the primary concern was stock price manipulation. There are some safeguards in place that prevent that from being too big of an issue. The tax-free dividend is more of a modern discovery, I think. Which is why the loophole hasn't been closed yet.
- initplus 5y ago
  You still pay capital gains tax when you sell the shares. Buybacks don't let investors avoid taxable events, they just allow investors to control when the taxable event happens. Whereas with a dividend, you pay tax immediately when the dividend is issued.
  - bin_bash 5y ago
    > Buybacks don't let investors avoid taxable events. Unless you’re a billionaire of course: https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov...