Corporate Stock Buybacks Have Crossed $1 Trillion

JM Ashby
Written by JM Ashby

Analysts have predicted that corporate stock buybacks would total more than $1 trillion this year following passage of the GOP's tax cuts for corporations and the rich, but last week it actually happened.

Buybacks announced last week pushed the total slightly above $1 trillion, which is a new record high, and the year is not quite over yet.

From CNN:

US companies, led by Lowe's (LOW) and AbbVie (ABBV), rewarded shareholders by unveiling $34.4 billion in buybacks last week, according to TrimTabs Investment Research. That lifted repurchase announcements above $1 trillion for the first time ever, TrimTabs said, exceeding the prior record of $781 billion set in 2015.

And the trend continued on Monday. Johnson & Johnson (JNJ), mired in a controversy over its iconic baby powder product, announced a $5 billion buyback. Boeing (BA) also ramped up its buyback program.

"It's no coincidence," said David Santschi, TrimTabs' director of liquidity research. "A lot of the buybacks are because of the tax law. Companies have more cash to pump up the stock price."

As you know, the GOP's tax cuts did not lead to a wave of investment beyond what corporations were already planning before the tax cuts were passed. The tax cuts merely flushed corporate America with a windfall of cash that they've funneled into buybacks.

A conservative analyst may tell you buybacks are good for the economy because they funnel money back into the pockets of shareholders. And that is more or less true, but it's also misleading because the overwhelming majority of Americans are not shareholders. Most of the employees of the companies announcing the biggest buybacks are not even shareholders.

The biggest shareholders are the executives who control the companies that are buying back their own stock. And what a nice racket that is if you can get it. Tens of millions of dollars of executive compensation usually comes in the form of company stock.

The GOP's tax cuts did not dramatically lower rates for rich individual filers, but the tax cuts for corporations are a 'tax cut for the rich' for the reasons listed above. It's a tax cut for the rich because the rich are the only people who own large amounts of stock.

Sometimes I hesitate to call the GOP's tax cuts a 'tax cut for corporations' because it hasn't necessarily benefited corporations in any material way; hasn't led to new strategy or products. Calling it a 'tax cut for shareholders' feels like a more appropriate or accurate description.

Rolling back these tax cuts is going to be extraordinarily difficult even when Democrats regain control of the White House (and impossible if they don't regain control of the Senate) and it will be important to emphasize that the tax cuts have primarily benefited rich shareholders, not regular business operations.

  • Draxiar

    Corporations with, quite literally with a show of hands, flat out said they weren’t going to trickle this money down. Once again a GOP tax cut didn’t benefit the majority of people. Then again, it was never intended to.

  • muselet

    There was never more than a sliver of a chance that corporations wouldn’t plow their new tax windfall into share buybacks.

    Of all the business reporters who unthinkingly parroted the administration’s line about investment and economic growth, the number who will admit they were wrong—let alone apologize—is approximately equal to zero.