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NOVEMBER 23, 2021

Meyerson on TAP

Building Back Better Through Taxing Stock Buybacks

Rather than squandering money on CEOs' rewarding themselves, the tax
would fund needed investment. Do I hear a second?

For the past four decades-ever since Ronald Reagan's appointees to
the Securities and Exchange Commission changed a rule and opened a
floodgate- stock buybacks have been a major contributor to the
misshaping of the American economy.

When the top executives of a publicly traded corporation decree that
their company will buy back a set amount of the company's shares, it
increases the values of the remaining shares, since the underlying value
of the company remains the same but the number of outstanding shares
decreases. As those same top executives tend to be very handsomely
rewarded for increases in the price of the company's shares, buying
back stock is a legal and apparently painless way of making themselves
m-f-ing rich. Nice work if you can get it.

The practice of buying back shares went all but unnoticed by economists
until the middle of the last decade, when University of Massachusetts
economics professor William Lazonick documented that the sum total of
buybacks by the corporations on the S&P 500 over the preceding decade
approximated the sum total of their profits. Rather than investing in
new equipment or research and development or (God forbid) wage
increases, America's corporate sector was buying back its own stock,
to the advantage of their leading executives and their shareholders
(chiefly, of course, large shareholders), and to the detriment of, well,
the economy at large. Lazonick published his findings in the

**Harvard Business Review** and has continued to cover this subject
through a host of articles in the

**Prospect**and other publications.

Over the past decade, the S&P 500 have repurchased more than $5 trillion
of their own stock, and the rate of repurchasing is steadily increasing:
They're pledged to buy back $1 trillion in this year alone. According
to a

**New York Times**analysis
,
Apple devoted $423 billion on buybacks over the past decade, while
spending just $233 billion on capital expenditures and R&D.

It makes perfect sense, then, that a one percent tax on corporate
buybacks is part of the Build Back Better bill that the House has passed
and sent to the Senate. Over the next decade, the tax is expected to
yield roughly $124 billion to pay for climate investments, workforce
development and such that our corporations wouldn't get around to on
their own.

The only argument I've encountered against the buyback tax (other than
the libertarian opposition to all taxes) is that shareholders may use
the financial rewards that come to them through buybacks to invest in
more productive enterprises. If the shareholders are concerned with
making money from their investments, however, they're more likely to
invest in other corporations that reward them with buybacks. Indeed,
it's all but impossible to find a corporation that doesn't shovel
the lion's share of its profits to shareholders through buybacks.

Which means, if you're favorably disposed toward bolstering American
productivity, industry, and competitiveness, and if the idea of
promoting the general good over the fortunes of the few brings a smile
to your face, the buyback tax is for you. And your country.

~ HAROLD MEYERSON

Follow Harold Meyerson on Twitter

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The Democrats' Last Chance to Make Build Back Better Better

They can use the savings from provisions that will likely fall out of
the bill in the Senate to make some remaining programs permanent. BY
DAVID DAYEN

The Supply Chain Mess

A deeper cure will take years, but Biden is finding creative ways to get
things unstuck. BY ROBERT KUTTNER

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Starbucks: Purveyor of Fresh Coffee and Stale Union-Busting

Management's old-school battle against its Buffalo baristas'
organizing campaign reveals a failure to recognize how unionization can
align the company with its consumers. BY TERRI GERSTEIN

Biden: Don't Repeat Jimmy Carter's Catastrophic Mistake on Inflation

Overreacting would be bad economics and bad politics. BY JEFF FAUX

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