The Latest from the Prospect
 ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌


View this email in your browser
<[link removed]>

 

MAY 25, 2023

Meyerson on TAP

The Bill That Would Stop Buybacks

To be introduced later today, this House bill would stop the massive
diversion of corporate revenues into CEOs' pockets.

The American economy has reached the point where rising stock prices
don't actually reflect people themselves buying stock.

As a recent report in

**The Wall Street Journal**
<[link removed]>
documented, a Bank of America survey of its individual and institutional
investor clients reveals that they have been selling off more shares
than they've been buying since the start of the year, to the tune of
$25.3 billion. The only reason stock prices have risen at all is
reflected in the bank's findings about two other groups of its
clients: hedge funds, which have purchased about $4 billion more than
they've sold, and corporations, which have bought back roughly $30
billion of their own shares.

The S&P 500's 8 percent increase this year, then, doesn't mean that
mom and pop, or even mom and pop's pension fund, are flocking to the
market. It means that CEOs are buying back their own companies'
shares, which, by reducing the number of shares outstanding, raises the
value of those shares, which benefits many of those same CEOs, who get
bonuses when the companies' share values rise, and the bulk of whose
compensation comes in the form of awarded shares, too.

Nice work if you can get it.

Merely to lay out that process is to explain why it continues to grow.
Last year, companies listed in the Russell 3000 announced they were
buying back a cool $1.27 trillion of their own shares, which was an
all-time record. The

**Journal** reports that they're on track to buy back at least as much
this year.

Until 1982, buying back shares wasn't actually allowed. In that year,
Ronald Reagan's appointees to the SEC passed a new rule legalizing the
practice. It took some time for CEOs to realize that this method of
self-enrichment had been opened to them. It wasn't until 2014, when
University of Massachusetts economist William Lazonick published a
report <[link removed]> in the

**Harvard Business Review**documenting the practice, that it began to
come to public notice. Lazonick looked at

the 449 companies in the S&P 500 index that were publicly listed from
2003 through 2012. During that period those companies used 54% of their
earnings-a total of $2.4 trillion-to buy back their own stock,
almost all through purchases on the open market. Dividends absorbed an
additional 37% of their earnings. That left very little for investments
in productive capabilities or higher incomes for employees.

Calculations for more recent years (including Lazonick's in several

**Prospect** articles <[link removed]>)
have shown those trends have only grown more so.

We Depend on Your Donations
<[link removed]>

It took still longer for buybacks to become a political issue. During
Congress's 2021-2022 term, Democrats passed and President Biden signed
a bill creating a corporate tax that came to 1 percent of the value of
the shares companies had repurchased in the past year. In his State of
the Union address in February, Biden called for raising that tax to 4
percent, which, given Republicans' control of the House, has gone
nowhere.

Given the sheer size of the economic rewards that buybacks deliver to
major shareholders and the top executives who authorize them, however,
there's no reason to think that a tax of 1 percent or 4 percent or 10
percent would stay these greed-heads from the swift completion of their
appointed self-enrichments. None of the current data shows that the 1
percent tax has deterred buybacks in the slightest.

For this reason, three House Democrats-Reps. Jesús "Chuy" García
(IL), Ro Khanna (CA), and Val Hoyle (OR)-are today introducing the
Reward Work Act to just plain ban stock buybacks. In an interview with
the

**Prospect**, García noted that buybacks are now common practice even
among corporations whose underinvestments in business basics have become
lamentably clear. "Norfolk Southern, whose train derailed in East
Palestine, bought back stock," he said. "Nike, which slashed what were
already poverty-level wages of its Asian workers, bought back stock.
Military arms producers that are funded by taxpayer dollars bought back
stock." He added that pharma bought back stock, with money that could
have gone to more research and development of medications.

García's bill also requires publicly traded corporations to change
the composition of their boards by having one-third of the board members
be elected by the company's employees. "We need to make corporations
more accountable to their workers," he said.

In Germany, corporations are required to have half of their board
members selected by their employees, though the CEO is always empowered
to break tie votes. The effects of this arrangement are somewhat murky
and not easily distinguished from those that German unions-which are
more powerful than American unions-win through collective bargaining.
When German corporations have offshored production, however, they often
have kept the most highly skilled work in their production chains within
Germany itself, for which the worker representation on their boards gets
some of the credit. On the other hand, the German system (known as
"codetermination") is more the result of the power workers have gained
through their unions than a cause of an increase in worker power.

There are no prospects, of course, that the García-Hoyle-Khanna bill
will be enacted by the current Congress (nor for a counterpart bill they
soon expect to be introduced in the Senate). Nonetheless, their bill
lays down a marker for the next time the Democrats control both Congress
and the White House, for increasing the power of labor and decreasing
the outsized claims of capital. In so doing, they're cementing its
place on progressives' list of
things-we-should-have-done-long-ago-but-at-least-we're-doing-now.

~ HAROLD MEYERSON

Follow Harold Meyerson on Twitter <[link removed]>

[link removed]

A Liberalism That Builds Power
<[link removed]>
The goals of domestic supply chains, good jobs, carbon reduction, and
public input are inseparable. BY DAVID DAYEN

State Election Officials Have Their January 6th Moment
<[link removed]>
Breaking up ERIC, the state election administration organization, could
be the boldest attempt yet to destabilize national elections. BY
GABRIELLE GURLEY

Democrats Need to Get Over Their Pathetic Fear of the Supreme Court
<[link removed]>
On today's X-Date, remembering what Franklin Roosevelt did when faced
with a potential Court decision that would blow up the economy: prepare
to ignore it. BY RYAN COOPER

Biden Admin Hypes Growing Asian Market for American Gas
<[link removed]>
Biden officials are hawking an Alaska pipeline and gas export complex
long seen as uninvestable. They promise skeptical investors sustained
market access to Asia. BY LEE HARRIS

[link removed]

 

To receive this newsletter directly in your inbox, click here to
subscribe.  <[link removed]>

Click to Share this Newsletter

[link removed]


 

[link removed]


 

[link removed]


 

[link removed]


 

[link removed]

YOUR TAX DEDUCTIBLE DONATION SUPPORTS INDEPENDENT JOURNALISM
<[link removed]>

The American Prospect, Inc.
1225 I Street NW, Suite 600
Washington, DC xxxxxx
United States
Copyright (c) 2023 The American Prospect. All rights reserved.

To opt out of American Prospect membership messaging, click here
<[link removed]>.

To manage your newsletter preferences, click here
<[link removed]>.

To unsubscribe from all American Prospect emails, including newsletters,
click here
<[link removed]>.