this post was submitted on 17 Sep 2023
1597 points (98.2% liked)
Memes
45897 readers
1437 users here now
Rules:
- Be civil and nice.
- Try not to excessively repost, as a rule of thumb, wait at least 2 months to do it if you have to.
founded 5 years ago
MODERATORS
you are viewing a single comment's thread
view the rest of the comments
view the rest of the comments
If I'm being honest, I don't understand this angle. Why are stock buybacks immoral or wrong? Isn't it simply using extra cash in a company to buy back stock from shareholders? With the same demand and reduced total stock, of course the price is going to go up. But the total market capitalization remains the same. I don't understand why this is somehow wrong. Can someone help me out?
Because executive pay is largely given in shares, so it incentivizes the leadership to invest funds in buy backs to inflate the price of the very shares they own instead of investing that money into employee pay or other company centric initiatives.
The other reply is correct regarding the macro effects of the practise. The more immediate issue is that it allows shareholders to avoid paying dividend taxes. So they can effectively defer paying taxes until they realise any capital gains. This is a huge benefit, as the present value of money is worth much more than the future value of money. However there is an even larger benefit in the U.S. Dependents can inherit stocks at the current price and avoid paying any capital gains tax. This is called the “stepped-up basis.” It’s an insane tax loophole. Together stock buy-backs and the stepped-up basis allow the ultra wealthy to pay little to no tax, ever. They take out perpetual loans to pay for living expenses, guaranteed against their holdings.