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Stock buybacks used to be illegal. It's a loophole way of paying employees at a lower tax rate than salary. HBR discusses some downsides of buybacks: https://h

Stock buybacks used to be illegal. It's a loophole way of paying employees at a lower tax rate than salary. HBR discusses some downsides of buybacks: https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for-the-economy https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for...

missedthecue 1y ago
Stock buybacks were never illegal. Stock buybacks were how Buffett took control of a small textile mill called Berkshire Hathaway in the 1960s. What was not allowed was at-the-market buybacks in the open market. Corporations had to do tender offers at a fixed price, usually well above market price, in order to attract sellers to mail in their certificates. I'm not sure why that is necessarily better or helps anyone, so I think allowing ATM buybacks is a net good.
- arthurcolle 1y ago
  I think they are actually bad because it enables messing with stock price in a way that is "explainable" when really it is just a bookkeeping exercise
  - JumpCrisscross 1y ago
    > when really it is just a bookkeeping exercise …that’s what a share of stock is.
  - missedthecue 1y ago
    Messing in what way? They are buying from willing sellers at the market price, using funds that are announced well before hand in public government filings (Form 10-Q and 8K) are to be used to buyback shares Sure, bids hitting the orderbook theoretically keeps a stock price higher than the counterfactual where the bids did not exist, but it's simply urban myth that failing companies can keep their stock price high over the long term with buybacks. The math doesn't pencil out.
    - nielsbot 1y ago
      > Sure, bids hitting the orderbook theoretically keeps a stock price higher QED: manipulation > failing companies can keep their stock price high over the long term with buybacks This assumes they care about the long term.
      - missedthecue 1y ago
        Am I manipulating a stock when I place a limit buy order? I don't even publicly announce it months beforehand like corporations do.
        _DeadFred_ 1y ago
        Are you an executive who will gain millions by doing it, and you are doing it with company money that your have corporate control over? Then yep. Maybe executives shouldn't have stock. Then it wouldn't be manipulation. But they do. That is their main compensation people like to point (the CEO isn't really getting paid those millions, it's stocks). So the CEO is paid in a way that encourage the CEO to commit DIRECT stock manipulation.
- nielsbot 1y ago
  According to Forbes they were > For most of the 20th century, stock buybacks were deemed illegal because they were thought to be a form of stock market manipulation. https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-should-be-required-to-vote-on-stock-buybacks/?sh=7f56517e6b1e https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-...
  - missedthecue 1y ago
    Forbes is simply wrong. Henry Singleton who founded Teledyne is known as the buyback king because he used his high-flying stock in the 1960s to snap up tons of smaller electronics companies, and when his stock crashed to $8 during the years of stagflation, snapped up millions with buybacks. In the end, he had used his stock as a currency to acquire dozens of companies at what essentially became 80% discounts. http://csinvesting.org/wp-content/uploads/2015/05/Dr.-Singleton-and-Teledyne-A-Study-of-an-Excellent-Capital-Allocator.pdf http://csinvesting.org/wp-content/uploads/2015/05/Dr.-Single... A very good very in-depth PDF read about him if you're interested in this type of thing.
  - vpribish 1y ago
    forbes is not a source of information. it used to be a real source of journalism but now is worthless
- yieldcrv 1y ago
  They had a presumption of guilt until a safe harbor rule was adopted by the SEC in 1982 which just formalized ways that the SEC was finding corporations not guilty and transparent enough, this blueprint paved the way for corporations to all copy it as well as reducing the administrative overheard of caring at all the exceptions make the rule
- beezle 1y ago
  If one does not think that buy backs are good to begin with, making them as difficult as possible (as was the case before the mid 80s) is preferable to the situation today.
  - stickfigure 1y ago
    As has been pointed out elsewhere, buybacks are morally equivalent to shareholder dividends; the only effective difference is the tax treatment. If you think returning money to investors is bad, I have to ask: Why would anyone invest in the first place?
    - shortrounddev2 1y ago
      If the only difference is how much of the profit is socialized vs privatized, then they are not morally equivalent
      - stickfigure 1y ago
        > how much of the profit is socialized vs privatized What does that phrase even mean? It's nonsensical. Whether via buybacks or dividends, money goes from the corporation to its investors. That's why investors invest.
    - beambot 1y ago
      Forced liquidity and the tax implications can absolutely be bad for investors. If my option is a 5% dividend or a 5% share buy-back, the net-of-taxes benefit of the 5% dividend is 15%-20% less due to capital gains taxes than the share buy-back. The effect with annual compounding over many years is quite material...
Fade_Dance 1y ago
That's specifically focusing on debt-driven buybacks and leverage, which is come down significantly since the dates in the article: https://www.federalreserve.gov/publications/April-2025-financial-stability-report-Borrowing-by-Businesses-and-Households.htm https://www.federalreserve.gov/publications/April-2025-finan... Metrics like debt service costs to cashflow are also relatively healthy.
necubi 1y ago
Buybacks are just a more tax-efficient way to issue dividends to shareholders (dividend issuance is a taxable event and at short-term rates, buybacks raise the stock price and those gains aren't taxable until you sell, at which point it may be long-term cap gains). It's reasonable to be upset about the fact that this is arguably a tax dodge! But all of the other criticism of buybacks apply equally to dividends which no one seems to get upset about. Fundamentally this is the corporation saying it doesn't have a market-beating way to reinvest this capital, and it's giving the money back to its owners to more productively invest.
- missedthecue 1y ago
  But the buyback involves buying from sellers. Why don't the sellers of the shares owe tax? Don't see how that's a tax-dodge. The fundamental purpose of a buyback is not to raise the stock price. The purpose of a buyback is to reduce the amount of outstanding shares, which makes every existing owner own an increased percentage. If a company buys back 10% of its stock, each long term shareholder now owns 10% more of the company. Over the long term, steady buybacks increase shareholder value this way, but the purpose of it isn't to slam the order book and juice the price. That's counterproductive, because you'll buy fewer shares at higher prices, and within a trading day, the market will push the price back to normal anyway.
  - deleted 1y ago
    [deleted]
  - NoahZuniga 1y ago
    capital gains tax (selling for a higher price) is lower than income tax (getting dividends)
    - bcrosby95 1y ago
      You're comparing apples to oranges. At least in the US, both capital gains an dividends have lower tax rate carve outs if you own the stock for > 1 year.
    - 1y ago

missedthecue 1y ago

Stock buybacks were never illegal. Stock buybacks were how Buffett took control of a small textile mill called Berkshire Hathaway in the 1960s. What was not allowed was at-the-market buybacks in the open market. Corporations had to do tender offers at a fixed price, usually well above market price, in order to attract sellers to mail in their certificates. I'm not sure why that is necessarily better or helps anyone, so I think allowing ATM buybacks is a net good.

arthurcolle 1y ago
I think they are actually bad because it enables messing with stock price in a way that is "explainable" when really it is just a bookkeeping exercise
- JumpCrisscross 1y ago
  > when really it is just a bookkeeping exercise …that’s what a share of stock is.
- missedthecue 1y ago
  Messing in what way? They are buying from willing sellers at the market price, using funds that are announced well before hand in public government filings (Form 10-Q and 8K) are to be used to buyback shares Sure, bids hitting the orderbook theoretically keeps a stock price higher than the counterfactual where the bids did not exist, but it's simply urban myth that failing companies can keep their stock price high over the long term with buybacks. The math doesn't pencil out.
  - nielsbot 1y ago
    > Sure, bids hitting the orderbook theoretically keeps a stock price higher QED: manipulation > failing companies can keep their stock price high over the long term with buybacks This assumes they care about the long term.
    - missedthecue 1y ago
      Am I manipulating a stock when I place a limit buy order? I don't even publicly announce it months beforehand like corporations do.
      - _DeadFred_ 1y ago
        Are you an executive who will gain millions by doing it, and you are doing it with company money that your have corporate control over? Then yep. Maybe executives shouldn't have stock. Then it wouldn't be manipulation. But they do. That is their main compensation people like to point (the CEO isn't really getting paid those millions, it's stocks). So the CEO is paid in a way that encourage the CEO to commit DIRECT stock manipulation.
nielsbot 1y ago
According to Forbes they were > For most of the 20th century, stock buybacks were deemed illegal because they were thought to be a form of stock market manipulation. https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-should-be-required-to-vote-on-stock-buybacks/?sh=7f56517e6b1e https://www.forbes.com/sites/aalsin/2017/02/28/shareholders-...
- missedthecue 1y ago
  Forbes is simply wrong. Henry Singleton who founded Teledyne is known as the buyback king because he used his high-flying stock in the 1960s to snap up tons of smaller electronics companies, and when his stock crashed to $8 during the years of stagflation, snapped up millions with buybacks. In the end, he had used his stock as a currency to acquire dozens of companies at what essentially became 80% discounts. http://csinvesting.org/wp-content/uploads/2015/05/Dr.-Singleton-and-Teledyne-A-Study-of-an-Excellent-Capital-Allocator.pdf http://csinvesting.org/wp-content/uploads/2015/05/Dr.-Single... A very good very in-depth PDF read about him if you're interested in this type of thing.
- vpribish 1y ago
  forbes is not a source of information. it used to be a real source of journalism but now is worthless
yieldcrv 1y ago
They had a presumption of guilt until a safe harbor rule was adopted by the SEC in 1982 which just formalized ways that the SEC was finding corporations not guilty and transparent enough, this blueprint paved the way for corporations to all copy it as well as reducing the administrative overheard of caring at all the exceptions make the rule
beezle 1y ago
If one does not think that buy backs are good to begin with, making them as difficult as possible (as was the case before the mid 80s) is preferable to the situation today.
- stickfigure 1y ago
  As has been pointed out elsewhere, buybacks are morally equivalent to shareholder dividends; the only effective difference is the tax treatment. If you think returning money to investors is bad, I have to ask: Why would anyone invest in the first place?
  - shortrounddev2 1y ago
    If the only difference is how much of the profit is socialized vs privatized, then they are not morally equivalent
    - stickfigure 1y ago
      > how much of the profit is socialized vs privatized What does that phrase even mean? It's nonsensical. Whether via buybacks or dividends, money goes from the corporation to its investors. That's why investors invest.
  - beambot 1y ago
    Forced liquidity and the tax implications can absolutely be bad for investors. If my option is a 5% dividend or a 5% share buy-back, the net-of-taxes benefit of the 5% dividend is 15%-20% less due to capital gains taxes than the share buy-back. The effect with annual compounding over many years is quite material...

Fade_Dance 1y ago

That's specifically focusing on debt-driven buybacks and leverage, which is come down significantly since the dates in the article: https://www.federalreserve.gov/publications/April-2025-financial-stability-report-Borrowing-by-Businesses-and-Households.htm https://www.federalreserve.gov/publications/April-2025-finan... Metrics like debt service costs to cashflow are also relatively healthy.

necubi 1y ago

Buybacks are just a more tax-efficient way to issue dividends to shareholders (dividend issuance is a taxable event and at short-term rates, buybacks raise the stock price and those gains aren't taxable until you sell, at which point it may be long-term cap gains). It's reasonable to be upset about the fact that this is arguably a tax dodge! But all of the other criticism of buybacks apply equally to dividends which no one seems to get upset about. Fundamentally this is the corporation saying it doesn't have a market-beating way to reinvest this capital, and it's giving the money back to its owners to more productively invest.

missedthecue 1y ago
But the buyback involves buying from sellers. Why don't the sellers of the shares owe tax? Don't see how that's a tax-dodge. The fundamental purpose of a buyback is not to raise the stock price. The purpose of a buyback is to reduce the amount of outstanding shares, which makes every existing owner own an increased percentage. If a company buys back 10% of its stock, each long term shareholder now owns 10% more of the company. Over the long term, steady buybacks increase shareholder value this way, but the purpose of it isn't to slam the order book and juice the price. That's counterproductive, because you'll buy fewer shares at higher prices, and within a trading day, the market will push the price back to normal anyway.
- deleted 1y ago
  [deleted]
- NoahZuniga 1y ago
  capital gains tax (selling for a higher price) is lower than income tax (getting dividends)
  - bcrosby95 1y ago
    You're comparing apples to oranges. At least in the US, both capital gains an dividends have lower tax rate carve outs if you own the stock for > 1 year.
  - 1y ago