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georgehabadasher
Taiwan23 Posts
On May 11 2023 02:07 KwarK wrote: Stock buybacks are just a tax efficient dividend. They’re really not anything special. Stock buybacks, or tax-incentivized dividends, are something that has and will continue to lead to increased wealth inequality. Their specialness is debatable, but they’re definitely not good for the country. | ||
KwarK
United States41934 Posts
On May 15 2023 10:14 georgehabadasher wrote: Stock buybacks, or tax-incentivized dividends, are something that has and will continue to lead to increased wealth inequality. Their specialness is debatable, but they’re definitely not good for the country. They're just dividends with a funny structure. | ||
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RvB
Netherlands6190 Posts
edit: In other words if you care about inequality what matters is ownership | ||
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georgehabadasher
Taiwan23 Posts
On May 15 2023 12:29 KwarK wrote: They're just dividends with a funny structure. Right, and that funny structure means they're tax-incentivized. Not sure why we want to incentivize dividends over other forms of corporate spending. | ||
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Mohdoo
United States15391 Posts
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RvB
Netherlands6190 Posts
On May 19 2023 10:49 georgehabadasher wrote: Right, and that funny structure means they're tax-incentivized. Not sure why we want to incentivize dividends over other forms of corporate spending. The tax advantage is from the perspective of an investor because buybacks fall under capital gains while dividends fall under the dividend tax. Dividend taxes are usually higher. There's no tax incentive for firms to pay out dividends or buybacks instead of other corporate spending. | ||
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KwarK
United States41934 Posts
On May 20 2023 04:16 Mohdoo wrote: stock buyback are a clear net-negative for society. They should not be legal. It’s literally the same thing as a dividend. | ||
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BlackJack
United States10180 Posts
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Mohdoo
United States15391 Posts
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KwarK
United States41934 Posts
On May 20 2023 07:08 Mohdoo wrote: That's correct, Blackjack. The measure of "is this a net positive or a net negative" is not "has this existed before". I have not researched dividends to the extent I have stock buyback, so I can't comment on that. But if they are the same thing, then dividends are also bad. If there are differences between dividends and buyback, which I think is likely, i won't comment on dividends. Dividends are essential for the operation of the economy. People work together to provide operating capital for an enterprise so that when the enterprise makes money they can take a portion of the profits. That portion is called a dividend. A company issues an amount of its earnings to all of its owners. That’s how all of this works. Being against dividends is like being against the very concept of private enterprise in terms of how revolutionary it is. You’re somewhat more extreme than Lenin. Regarding dividends vs buybacks, let’s say a company has $80 in inventory and $20 in cash. It has 100 shareholders, each with 1 share, each worth $1. The business doesn’t really own anything, the people collectively do. They could vote to give $0.10 to each of the 100 shareholders and now there would be 100 shareholders each with a claim on $90 of assets. The shares would be worth $0.90 each but each shareholder would now also have $0.10 in cash, they still have $1 total, they’ve just taken back some of their own money from the company. Now imagine they vote to buy out 10 of the shareholders and spend $10 buying 10 shares. The company now has $90 in assets, 90 shareholders (each with a claim on $1 of assets) and 10 former shareholders each with $1 in cash. Now imagine they vote to buy out 0.1 shares from each shareholder. They pay $0.10 to each shareholder. They still have 100 shareholders but each shareholder now has 0.9 shares for a total of 90 shares outstanding. Each share is worth $1 so each shareholder has 0.9*$1 plus $0.10 cash. This is all just accounting games. You’re returning cash to the owners of a company in various ways but it’s materially identical. Stock buybacks are a tiktok meme problem, not an actual problem. People mistake the mechanism for companies returning all this excess money to shareholders for the problem that these companies (and therefore their owners) have all the money. Imagine the problem is slicing up a pizza, you can give 4 guests 2 1/8 slices or you can give 4 guests 1 1/4 slices but that’s just structuring the division of the pizza. It doesn’t change how much pizza there is. It fundamentally can’t. The problem of some people getting invited to the pizza party and some people who actually made the pizza are starving outside is unchanged by how many slices you cut the pizza into. | ||
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Mohdoo
United States15391 Posts
On May 20 2023 07:19 KwarK wrote: Dividends are essential for the operation of the economy. People work together to provide operating capital for an enterprise so that when the enterprise makes money they can take a portion of the profits. That portion is called a dividend. A company issues an amount of its earnings to all of its owners. That’s how all of this works. Being against dividends is like being against the very concept of private enterprise in terms of how revolutionary it is. You’re somewhat more extreme than Lenin. I feel like I specifically said I don't know about dividends and said I won't comment on it. What you are describing is a practice which I think is distinct from stock buyback. Can you elaborate on why you consider these 2 things to be the same? | ||
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KwarK
United States41934 Posts
On May 20 2023 07:21 Mohdoo wrote: I feel like I specifically said I don't know about dividends and said I won't comment on it. What you are describing is a practice which I think is distinct from stock buyback. Can you elaborate on why you consider these 2 things to be the same? Was editing it, just took a while to write it out on my phone. Sorry, see above. | ||
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GreenHorizons
United States22664 Posts
On May 20 2023 06:27 BlackJack wrote: To be fair, Mohdoo and GH probably don’t think we should have dividends either I basically don't. To Kwark's point, one reason is it being a way of exacerbating the condition of extracting the wealth generated by workers to owners and those typically not being the same people in a practical sense. | ||
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Sermokala
United States13735 Posts
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KwarK
United States41934 Posts
On May 20 2023 09:52 Sermokala wrote: I think they have some pretty structural differences that allows executive compensation to avoid paying taxes that dividends don't have but I get that it's never going to be fixed. What you are thinking of is the implicit tax deferral in your payment being an effectively larger part of the company. If the company gives you cash that’s income. If the company buys out one of the other shareholders then they have effectively redistributed those shares to the remaining shareholders. In my example above where they buy out 10 of the 100 shareholders the remaining 90 still only have one share but now they have 1 out of 90 rather than 1 out of 100. Their share is effectively now worth 1.1 shares under the old system. Because they haven’t gotten anything there are no tax implications. Nobody gave them cash, nobody gave them shares, it’s that the shares of someone else were bought and warehoused which implicitly increases the value of the remaining ones due to them having a higher share of votes and a greater claim on the assets. But you can’t tax an implicit increase in value due to concentration of voting rights. The company still has to pay taxes on its income (shareholder transactions are never a tax deductible expense) and when the shareholders eventually get a dividend they’ll have to pay taxes on it. But until then all taxes are deferred because no transaction has occurred. | ||
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Mohdoo
United States15391 Posts
On May 20 2023 07:29 KwarK wrote: Was editing it, just took a while to write it out on my phone. Sorry, see above. I understand the comparison, but after some investigating, it appears there is indeed both a qualitative and quantitative difference between the 2. The general gist is the same, but one is significantly more underhanded than the other. Can you explain what about this article is not true? https://thehustle.co/what-the-hell-are-stock-buybacks/ I am having a really hard time seeing why this is ok in your eyes. | ||
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Sermokala
United States13735 Posts
On May 20 2023 11:34 KwarK wrote: What you are thinking of is the implicit tax deferral in your payment being an effectively larger part of the company. If the company gives you cash that’s income. If the company buys out one of the other shareholders then they have effectively redistributed those shares to the remaining shareholders. In my example above where they buy out 10 of the 100 shareholders the remaining 90 still only have one share but now they have 1 out of 90 rather than 1 out of 100. Their share is effectively now worth 1.1 shares under the old system. Because they haven’t gotten anything there are no tax implications. Nobody gave them cash, nobody gave them shares, it’s that the shares of someone else were bought and warehoused which implicitly increases the value of the remaining ones due to them having a higher share of votes and a greater claim on the assets. But you can’t tax an implicit increase in value due to concentration of voting rights. The company still has to pay taxes on its income (shareholder transactions are never a tax deductible expense) and when the shareholders eventually get a dividend they’ll have to pay taxes on it. But until then all taxes are deferred because no transaction has occurred. Yes this is my understanding of it and why I have a problem with it. The ability to take loans on the indirect compensation inherent with buy-backs that is tax free and instant while the tax from it, and the governments ability to invest it in something for the greater good, is delayed and deferred. It creates a cost-benefits environment that is pro rich and pro-executive that drains a companies ability to invest in its people and/or at least the governments ability to invest in people. I admit I'm not smart enough to find a solution but I believe I am enough to see a problem. Companies taking out loans to preform stock buybacks and then collapsing due to the weight of the debt in a turndown is just bad I guess. | ||
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KwarK
United States41934 Posts
On May 20 2023 12:21 Sermokala wrote: Yes this is my understanding of it and why I have a problem with it. The ability to take loans on the indirect compensation inherent with buy-backs that is tax free and instant while the tax from it, and the governments ability to invest it in something for the greater good, is delayed and deferred. It creates a cost-benefits environment that is pro rich and pro-executive that drains a companies ability to invest in its people and/or at least the governments ability to invest in people. I admit I'm not smart enough to find a solution but I believe I am enough to see a problem. Companies taking out loans to preform stock buybacks and then collapsing due to the weight of the debt in a turndown is just bad I guess. You could take loans out if the company issued no dividends and did no buybacks. The stock has gone up in value because the company is sitting on a boatload of profits. If they return those profits to the people directly it’s taxable. If they hoard the cash then the stock price goes up to reflect the share of cash owned by the shareholder. | ||
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KwarK
United States41934 Posts
On May 20 2023 12:10 Mohdoo wrote: I understand the comparison, but after some investigating, it appears there is indeed both a qualitative and quantitative difference between the 2. The general gist is the same, but one is significantly more underhanded than the other. Can you explain what about this article is not true? https://thehustle.co/what-the-hell-are-stock-buybacks/ I am having a really hard time seeing why this is ok in your eyes. All of it isn’t true except the part where they said that it’s generally a wash with dividends. They don’t increase value. If I buy out half the shareholders I have to give them half the cash. The remaining half have twice as many shares in a business half as big. Earnings per share is irrelevant and nobody thinks it isn’t. Company A makes $20 per share per year. Company B only makes $10. Which offers a greater return on investment? You would immediately say “it depends on the cost of the shares obviously”. Well done, you’ve just invented the P/E ratio, what they actually use. EPS isn’t used in compensation for executives without accounting for the number of shares outstanding. It’s like they’re doing business penis enlargement spam ads “make your EPS higher with this one weird trick the board doesn’t want you to know about”. They say that stock buybacks don’t create lasting value etc. but they’re not meant to, they’re literally meant to take excess cash out of the business and return it to the owners so that the owners can do anything else with it. They’re a dividend. Apple exists to make money for its owners. It makes a shitload of money and then gives it back to the owners. A growing business may take profits and reinvest them if that’s what the board (elected by the shareholders) select as the strategy but there’s only so big any business can get. If you reinvest your profits then next year you have even more profits and then you reinvest those and eventually there is nothing left to do with the money and so you go “fuck it, it really belongs to our shareholders anyway, they can have it back and get a steak dinner or whatever idk”. And then some moron writes an article saying that literally giving the shareholders their excess money back doesn’t create lasting value for the shareholders. Presumably it’s better for Apple to just stack it up forever? Their buyback “loss” stuff is laughably bad accounting because you can’t take a loss from giving your owners back their own money because you’re both sides in that transaction. It wouldn’t make sense. Who took the loss? There’s a reason that shareholder transactions are explicitly excluded from the income statements which is something they got around by calling it a paper loss. Like this is something they teach very early in accounting courses. Try to follow their argument for a minute. A company has $100 and 10 shareholders each with 10 shares. The company decides to buy back 50 shares for $50, taking half from each. The remaining shareholders each own 5 shares out of the 50 outstanding. What happened to the other 50 the company owns? Well they could be retired but if not then the 10 shareholders each theoretically owns 1/10 of the 50 which puts them right back where they started. Anyway, now the company only has $50 in cash, not $100 in cash, and so the genius writing their argument will say that the value of the shares has halved and therefore the company has taken a $50 loss. But what kind of loss could that be? There wasn’t a fire. Nothing was destroyed. If they overpaid for the 50 shares then they were overpaying themselves, they gave money to the people that they exist to give money to. The airlines shit is just robber capitalism. The owners gut the business and pay out the profits to the shareholders then cry when it all falls apart. That’s just Reaganomics for you. You can thank Jack Welch for doing that with GE and he certainly didn’t need buybacks to do it. The argument that buybacks disproportionately benefit the shareholders is a weird one. You might as well say that high oil prices disproportionately benefit people with oil wells. Dividends would disproportionately benefit the exact same group. When Apple makes a shitload of money that is going to disproportionately benefit people with Apple shares over people without Apple shares. That’s the argument they’re making. But they’re presenting it as a buyback issue that the richest 10% own 84% of stocks. Of course the rich people own the stocks, that’s why they’re rich. If they didn’t own more stuff than regular people we wouldn’t call them the rich. If it turned out that the poorest Americans actually had the majority of the wealth then I would have a lot more questions. The whole article is nothing but flat out lies and misrepresentations that are somehow worse than the lies. It’s just TikTok accounting. When you actually try to struggle through the implications of what they’re trying to argue it’s mind blowing in its stupidity. It’s as if they made the argument that American welfare spending disproportionately favours Americans over Canadians when Canada is actually geographically a bigger portion of the continent of North America. You spend a minute trying to wrap your head around what you just read and then you just can’t even. | ||
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Acrofales
Spain17826 Posts
On May 20 2023 14:26 KwarK wrote: All of it isn’t true except the part where they said that it’s generally a wash with dividends. They don’t increase value. If I buy out half the shareholders I have to give them half the cash. The remaining half have twice as many shares in a business half as big. Earnings per share is irrelevant and nobody thinks it isn’t. Company A makes $20 per share per year. Company B only makes $10. Which offers a greater return on investment? You would immediately say “it depends on the cost of the shares obviously”. Well done, you’ve just invented the P/E ratio, what they actually use. EPS isn’t used in compensation for executives without accounting for the number of shares outstanding. It’s like they’re doing business penis enlargement spam ads “make your EPS higher with this one weird trick the board doesn’t want you to know about”. They say that stock buybacks don’t create lasting value etc. but they’re not meant to, they’re literally meant to take excess cash out of the business and return it to the owners so that the owners can do anything else with it. They’re a dividend. Apple exists to make money for its owners. It makes a shitload of money and then gives it back to the owners. A growing business may take profits and reinvest them if that’s what the board (elected by the shareholders) select as the strategy but there’s only so big any business can get. If you reinvest your profits then next year you have even more profits and then you reinvest those and eventually there is nothing left to do with the money and so you go “fuck it, it really belongs to our shareholders anyway, they can have it back and get a steak dinner or whatever idk”. And then some moron writes an article saying that literally giving the shareholders their excess money back doesn’t create lasting value for the shareholders. Presumably it’s better for Apple to just stack it up forever? Their buyback “loss” stuff is laughably bad accounting because you can’t take a loss from giving your owners back their own money because you’re both sides in that transaction. It wouldn’t make sense. Who took the loss? There’s a reason that shareholder transactions are explicitly excluded from the income statements which is something they got around by calling it a paper loss. Like this is something they teach very early in accounting courses. Try to follow their argument for a minute. A company has $100 and 10 shareholders each with 10 shares. The company decides to buy back 50 shares for $50, taking half from each. The remaining shareholders each own 5 shares out of the 50 outstanding. What happened to the other 50 the company owns? Well they could be retired but if not then the 10 shareholders each theoretically owns 1/10 of the 50 which puts them right back where they started. Anyway, now the company only has $50 in cash, not $100 in cash, and so the genius writing their argument will say that the value of the shares has halved and therefore the company has taken a $50 loss. But what kind of loss could that be? There wasn’t a fire. Nothing was destroyed. If they overpaid for the 50 shares then they were overpaying themselves, they gave money to the people that they exist to give money to. The airlines shit is just robber capitalism. The owners gut the business and pay out the profits to the shareholders then cry when it all falls apart. That’s just Reaganomics for you. You can thank Jack Welch for doing that with GE and he certainly didn’t need buybacks to do it. The argument that buybacks disproportionately benefit the shareholders is a weird one. You might as well say that high oil prices disproportionately benefit people with oil wells. Dividends would disproportionately benefit the exact same group. When Apple makes a shitload of money that is going to disproportionately benefit people with Apple shares over people without Apple shares. That’s the argument they’re making. But they’re presenting it as a buyback issue that the richest 10% own 84% of stocks. Of course the rich people own the stocks, that’s why they’re rich. If they didn’t own more stuff than regular people we wouldn’t call them the rich. If it turned out that the poorest Americans actually had the majority of the wealth then I would have a lot more questions. The whole article is nothing but flat out lies and misrepresentations that are somehow worse than the lies. It’s just TikTok accounting. When you actually try to struggle through the implications of what they’re trying to argue it’s mind blowing in its stupidity. It’s as if they made the argument that American welfare spending disproportionately favours Americans over Canadians when Canada is actually geographically a bigger portion of the continent of North America. You spend a minute trying to wrap your head around what you just read and then you just can’t even. I agree the article is awful, but the stock buyback does have an issue that dividends don't have: stock isn't valued at what the company is worth today, but at how much money it's expected to make in the future. Apple isn't worth a trillion dollars because it has a trillion dollars worth of "assets", it's worth a trillion dollars because shareholders believe Apple is consistently going to make a lot of profit. Now let's revisit dividend and buybacks, but taking the share of future profit that each shareholder will own into account. The company issued 100 shares, each are valued at $1, so the company is worth $100. It now takes out a very cheap loan of $198 and buys back 99 shares at double what they were valued at. There is now a single shareholder with 1 share. The company is worth $2 on paper (100 shares at $2 minus a $198 loan), but the shareholder isn't on the hook for the loan. His 1 share in the company is also worth $2 now, though, just as all the other shares that were bought out with borrowed money. However, all the company's ideas and things are intact. The company sells lots of stuff next year and pays all its profit, $30, in dividend. The single remaining shareholder now has $30 in cash. If the company goes bankrupt because of its unwise loans the next day, he'll still have his $30 in cash. Compare this to the case where there is no buyout: the shares don't inflate in price due to a loan-driven buyout, and the next year, $30 profit (maybe even call it $32 because there's no interest to be paid on any loans) is paid out as $0.32 to each shareholder. The problem isn't directly with buybacks,, which are fine in a vacuum, it's with using cheap, government-issued loans to distort share prices through buybacks. Could the company instead have taken out a loan and just paid that cash out in dividend? Maybe, I don't know the laws, but I doubt that it'd be legal. | ||
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