Democrats thought they had a strong argument when they said the only thing corporations would do with their tax savings was to buy back shares of stock from shareholders. As it's turned out they've done a lot more than that with the money, but to be sure, they're buying back stock at a faster rate than we've seen in a very long time:
U.S. corporations have announced more than $218 billion in share buybacks since Congress enacted the Republican tax overhaul in December, an investment research firm said on Wednesday.
The California-based firm TrimTabs, which tracks corporate buybacks, said the value of buyback programs announced in February alone surged to $153.7 billion from $59.9 billion in January, smashing a previous monthly record of $133 billion in April 2015.
“Activity has certainly accelerated. Buybacks increased for five consecutive months beginning in July 2017 and have exploded in February,” said TrimTabs analyst Winston Chua.
“If the pace keeps up, this year’s volume will smash totals from all other previous years going back more than a decade,” he added.
Meanwhile, U.S. Senate Democrats said in a separate report that $209 billion worth of U.S. corporate share buybacks have been announced since Jan. 5, claiming the figure shows that the Republican tax overhaul largely benefits corporations, corporate executives and wealthy shareholders.
Long a flash point for partisan disagreement in Washington, the tax cuts are expected to play a major role in Nov. 6 congressional mid-term elections, which will determine whether Republicans can maintain their majorities in the Senate and House of Representatives.
Republicans including President Donald Trump, who signed tax legislation into law in December, have joined U.S. companies in promoting a recent spate of bonuses, pay raises and other benefits as evidence that the tax overhaul is benefiting workers.
The fact that Democrats are now crowing about this shows how little they understood their own argument in the first place.
Trump and the Republicans are right when they say that the pay raises and bonuses are benefiting workers. How could they not? But the stock buybacks are also beneficial to the economy. In fact, they actually address one of the complaints liberals had about the economy before the tax cuts.
Liberals complained that the problem in the economy wasn't a lack of capital, but in fact was too many corporations sitting on piles of cash and not using it for anything. That was nowhere near as broadly true as the left wanted you to think it was, but it was true that a good number of corporations were sitting on capital and didn't have any ideas for how to invest it, or didn't want to invest it because the incentives in the tax code argued against the idea that you'd get enough reward for your risk.
When the tax cut passed, corporations who were sitting on cash started making different decisions about their cash reserves. It now made more sense to at least re-acquire more of their own stock if they didn't have plans for an expansion or for new capital acquisitions.
But wait, the left says, doesn't that prove the tax cut didn't really benefit ordinary people in these instances? No. If employees needed a raise, then the tax cut made it possible to give it to them. But if employees were already being paid what the market would suggest they should be paid, then it wouldn't benefit the company or the employees to overpay them. All that does is make your labor force overpriced and harder to sustain.
So if the company doesn't have any ideas for how to re-invest its capital reserves, then the best thing it can do for the economy is a stock buyback. Why? Because now you're putting more capital into the hands of investors who will think of something to do with it. The left will scream that you're just "benefiting the rich," but this stupid measure of whether the rich or the poor benefit is always beside the point. You want to release capital into the hands of people who will do something productive with it. That's how capital formation starts, and that's what leads to growth.
Those investors who decide to sell their shares back to the company are doing so because they think they can invest that capital somewhere else more productive, and that's good for the economy as a whole.
So yes, you'll hear a lot of Democrats screeching today about all the stock buybacks, and you won't hear many people in the media challenging them on their claim that the buybacks are a bad thing. Someone needs to. The buybacks are a very good thing. They're a crucial part of the re-allocation of capital that leads us to real growth.
Democrats thought they had a strong argument when they said the only thing corporations would do with their tax savings was to buy back shares of stock from shareholders. As it's turned out they've done a lot more than that with the money, but to be sure, they're buying back stock at a faster rate than we've seen in a very long time:
