Promoting freedom, innovation, and growth

Connect with IPI

Receive news, research, and updates

August 21, 2018

Who's Afraid of Stock Buybacks? Elizabeth Warren, That's Who

 

I am convinced Democrats cannot sleep at night for fear that somewhere someone might be spending their own money the way they choose to spend it.

And along comes Senator Elizabeth Warren to prove my point. 

The Massachusetts senator’s Accountable Capitalism Act is her latest effort to ensure that government, not executives and shareholders, decides how to spend corporate profits. 

The U.S. economy has been gaining speed since President Trump took office, and December’s tax cut legislation kicked it into high gear. The result is that companies have money to spend. 

One thing they’re spending it on is higher wages. The Wall Street Journal reported in July, “U.S. workers received their biggest pay increases in nearly a decade over the 12 months through June ...” And then there are the millions of dollars in bonuses many companies handed out after the tax cuts.  

Some companies are reinvesting their profits. Bloomberg reported in May, “Among the 130 companies in the S&P 500 that have reported results in this earnings season, capital spending increased by 39 percent, the fastest rate in seven years, data compiled by UBS AG show.”  

But companies are also using some of those profits to buy back their own stock. The Journal says, “S&P 500 companies are on track to repurchase as much as $800 billion in stock this year, a record that would eclipse 2007’s buyback bonanza.” 

And that’s what has Warren—and virtually all of the socialist-leaning Democrats (which is most Democrats these days)—bothered, because they can think of better ways to spend that money.  

Under her Accountable Capitalism Act, “American corporations with more than $1 billion in annual revenue must obtain a federal charter from a newly formed Office of United States Corporations at the Department of Commerce.” A survey of publicly traded U.S. companies found nearly 1,400 with 2016 revenues of $1 billion or more. 

But why are Democrats so afraid of stock buybacks?  

Selling stock is one of several ways companies raise capital. If they have more capital than they can profitably invest, buying back stock or paying down debt are good uses of the funds.  

The economy is strong and there are no recession warning signs. But Wednesday will mark the longest running bull market in history. It is prudent to think a downturn may be on the horizon—and to be financially prepared. Stock buybacks are one way to do that.

Warren’s real goal with her ACA is to put corporate financial decisions in the hands of politicians and bureaucrats, so company executives have to come, check in hand, begging the powers-that-be to let them spend their own money.  And so politicians can use that money to pay off their cronies and supporters—otherwise known as “the swamp.” 

Warren’s ACA would likely be the biggest corporate money grab—not to mention power grab—in U.S. history.


 

  • TaxBytes-New

Copyright Institute for Policy Innovation 2018. All Rights Reserved Privacy Policy Contact IPI.

e-resources e-resources