Buybacks Are Outpacing Regular Business Spending

JM Ashby
Written by JM Ashby

Stock buybacks are expected to reach or surpass $1 trillion by the end of this year, but businesses have already spent more on buybacks than they've spent on their own business operations according to Goldman Sachs.

From Bloomberg:

According to Goldman Sachs, aggregate share repurchases (or buybacks) rose by nearly 50 percent to $384 billion in the first half of 2018. That tops the $341 billion spent on capital expenditures, which are rising at the fastest pace in at least a quarter century.

“For the first time in 10 years, buybacks are garnering the largest share of cash spending by S&P 500 firms,” writes chief U.S. equity strategist David Kostin. “Capital spending has typically represented the largest single use of cash by corporations, a position it has held for 19 of the past 20 years.”

Awash with cash in light of a lower tax burden, corporate executives are electing to spend more on making themselves smaller rather than bigger -- a bet that’s rewarded shareholders.

Republicans said passing their tax cuts for corporations and the rich would lead to a wave of business investment that would be passed down to workers in the form of higher wages, but that obviously hasn't happened.

Businesses have spent more buying back their own stocks than they've spent investing in their own business operations.

Business spending has increased and the economy has continued to add jobs, but that would have occurred even if Republicans had not touched the tax code. Passing the GOP's tax cuts just gave corporations a new way to funnel even more money to their richest executives and shareholders while providing no tangible benefit to average workers. The tax cuts have not led to major shift toward growing business operations at any major corporation that wasn't already planning to expand.

It'll be average workers who eventually pay for the tax cuts they never received much if any benefit from.

Republicans socialized the cost of handing another trillion dollars to people who were already rich.

  • Draxiar

    I think these people are taking the “greed is good” philosophy waaaaay too far. Then again, that’s the nature of greed….there is no “too far”.

  • muselet

    I am at least slightly heartened that capital expenditures “are rising at the fastest pace in at least a quarter century,” but wages need to rise. Without demand, the US economy will stagnate. Share buybacks won’t change that, unless one looks at a very narrow slice of the economy (business jets, say, or hypercars or bespoke watches).

    As I keep saying, supply-side works; it’s just not money that trickles down. *rimshot*


  • Badgerite

    Since a lot of CEO compensation is in company shares, as well as extraordinary salaries and perks, this has been a prime opportunity for CEOs to cash in. They are literally pocketing the money that will need to be paid back later by lower and middle income taxpayers.

    • JMAshby

      Yes. Given that the tax cuts have been funneled into share buybacks rather than company operations, it’s effectively a tax cut for the rich individuals who own the shares.

      To call it a corporate tax cut is almost misleading because it’s been turned around to benefit a relatively small number of people within the corporate sphere. There’s a whole new wage gap opening up between the 1 percent and the 0.1 percent. Even CEO pay is dwarfing the pay of other CEOs at smaller companies.

      I’d called it grift.

      • Badgerite

        Exactly. And when the bill comes due for the grift to be paid for guess what programs the gop will be coming after? They’ll start with everything associated with FDR’s New Deal and when they’ve eaten that up, they may take us back in time even further.

  • Of course, they only like socialism when they can line the pockets of the “right” kinds of people.