Buybacks Announcements Spike: Shareholders, Not Workers Get Tax Break

Mish

A spike in share buyback and special dividend announcements reveals that companies will not use tax cuts for investment.

Those who thought the tax plan would lead to announcements of more hiring and investment have already been proven wrong.

In a strong hint at how a tax repatriation holiday is going to play out, Share Buybacks Announcements Spike already.

A spike in share buyback and special dividend announcements this week reveals that companies are more likely to use any money saved on an all-too-familiar item: shareholder returns.

Bank of America, Home Depot, Johnson Controls International, T-Mobile US , Ciena, and even Madison Square Garden Co. are among the companies to unveil new buyback authorizations this week, rushing in even before a final tax bill has been formulated.

“I expect a lot more announcements of rewards for shareholders,” said William Lazonick, professor of economics at the University of Massachusetts Lowell and director of the Center for Industrial Competitiveness.

Carmine DiCesare, a consultant at FactSet, said that [the 2004] holiday led to an estimated $300 billion–plus in earnings being repatriated to the U.S. However, a FactSet analysis of S&P 500 index SPX, +0.24% constituents showed that share repurchases nearly doubled to $202.7 billion in 2004 from $115 billion in 2003, while special dividends paid jumped nearly sixfold to $179.4 billion from $30.3 billion.

On the investment side, capital expenditures, which is what creates jobs and pumps money back into the economy, inched up just 3.5% to $385 billion in 2004 from $372 billion in 2003, DiCesare said.

Show of Hands

The notion that the tax plan would be a big boon to hiring and investment has already been disproved.

Mike "Mish" Shedlock

Comments (22)
No. 1-22
whirlaway
whirlaway

Of course we know that the best way to make the rich work harder is to cut their taxes. And the best way to make the poor and the middle-class work harder is to cut their wages. </s>

douglascarey
douglascarey

Mish, you're bitter because you missed the spike in GDP this year. The only reason GDP growth has gone up so much is due to anticipation of lower taxes and regulations under a Trump administration. Give Trump some credit already. He has to work with RINOs and the awful democrats. But given these constraints, he's doing a damn good job so far.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

I am not bitter about any such thing. Besides let's see what happens next.

alexaisback
alexaisback

2017 $5,490,000

alexaisback
alexaisback

what this means is you pay zero federal estate tax unless you have more than 5.5 ML in your estate, where those that do will utilize trusts and gifts to make the threshold even greater

SMF
SMF

My boss has had to pay an increasing amount of $$$ for my health insurance. Employers are already paying more for employees due to regulations, and that money could have gone for our wages instead.

alexaisback
alexaisback

So the JOKE is there really is no federal estate tax on anyone but the super wealthy, and the idiots are taking that away, an incredibly foolish mistake, very harmful, we will all have to pay more to make up for it, and it will impoverish you children and grandchildren.

alexaisback
alexaisback

2018, estate and gift tax exemption is $5.6 million per individual a married couple more than $11 million ($11.2 million).

alexaisback
alexaisback

so not estate tax - guess who benefits and who suffers ?

alexaisback
alexaisback

The tax bill is outrageous and none of the media will report it as their bosses all want the benefit.

El_Tedo
El_Tedo

More flexible depreciation rules should be some incentive to invest, but I've never understood the logic of lower marginal tax rates encouraging investment. Investment is a deductible expense. The lower the rates are, the LOWER the tax benefit is to reinvesting in the business.

clovisdad
clovisdad

This seems the wrong conclusion. Share buybacks will put more cash in investors' hands, to be allocated where it gives rise to the greatest growth (investment is not a charitable activity). This newly allocated capital will (if injected into businesses in the US) increase US investment.

0123
0123

The "system" will not reward long-term investment made by short-term management when there's easy money on the table. I'm most definitely not a fan of government intervention BUT in this case the government created the situation, is offering unnecessary tax breaks for reasons they need to control and they should. Or don't provide the tax breaks. And actually reform taxes not just shift the deck chairs around.

Casual_Observer
Casual_Observer

I don't know what will happen but I know whatever it is will have unintended consequences that turn out bad for most people. Once the share buybacks are done and investors are rewarded, the emperor will have no clothes on and a recession will ensue. The tax bill is nothing more than a holdup for more money. The only way to make more money after that is for there to be losers in the market so winners can buy back in.

The problem with so much money searching for return is that eventually there are bubbles everywhere. That is where we are now. Speculative money is going into the bitcoin frenzy, stocks, real estate and everything else you can imagine. This may be the bubble of all bubbles. This time will be worse than 2000-2002 or 2007-2009.

El_Tedo
El_Tedo

Share buybacks don't put cash into investors' hand, it increases the value of their equity position. But, even dividend increases - which do put cash into investors' hands - don't translate to increase business investment. If business had more productive things to do with the capital, they would have reinvested it, rather than return it to shareholders. The problem with capex right now is that, outside of tech, most industries do not see growth opportunity in their industry.

Ambrose_Bierce
Ambrose_Bierce

and when those shareholders get their dividends they will hire me to mow their lawn.

RonJ
RonJ

"Buybacks Announcements Spike: Shareholders, Not Workers Get Tax Break" The CEO gets stock options. At the peak of the home building market, CEO Bruce Karatz sold $400 million of KB Homes stock. Common stock holders were left holding the bag.

Realist
Realist

Mish is correct. The US economy has been growing at a steady 2% rate for 9 years and is not capable of growing much faster due to a shortage of skilled labour, tepid wage growth, and limited domestic demand. There is little need/ability for companies to invest heavily to expand production. Share buybacks and special dividends will consume the bulk of tax reform.

xil
xil

if the rich aren't made richer, how can the poor (workers) be expected to prosper?

Snow_Dog
Snow_Dog

“The problem with so much money searching for return is that eventually there are bubbles everywhere. That is where we are now. ”

Casual Observer, if I may ask, where are you putting new money right now? I have been an equity buyer but now want to pivot out if stocks in 2018. The last thing this huge bubble needs is tax relief. The multiples will become outrageous in the coming year(s).

Stuki
Stuki

@clovisdad

As will “putting more cash” in anyone’s hands. Including government’s. And my dog’s. The last one being by far the best steward of it; since as opposed to the other two, the worst he is likely to do with it is just plain waste it, for a net zero. Rather than the net negative of driving up asset prices, lobbying for competition restricting regulations, and enacting and enforcing them.

If the money handed over to “investors” came penny for penny straight out of government spending, fine! It’s hard to argue taking money from government and handing it to literally anyone, up to and including ISIS, is not money well spent. But as soon as that is not the case, it’s equally hard to argue that a bunch of idle recipients of Fed welfare, are somehow the best ones to asymmetrically reward; for their closeness to Yellen and Co., and precious little else.

ReadyKilowatt
ReadyKilowatt

"Ready! Shoot! Aim!" seems to be the common thread when it comes to tax breaks for the middle class. At least our brave investment class will be rewarded for all their hard work and risk taken since 2008.


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