[longtermsec]

TL;DR dividends dont get a tax deduction, interest from debt for buybacks do, so buybacks are more attractive

Given that interest rates were so low from 2009-2017, many companies actually issued debt not because they needed the money but in order to do stock buybacks. Some companies such as McDonalds have definitely overdipped as their revenues declined significantly, but other companies like Apple and Microsoft were smart to do it while maintaining growth.

Apple had $0 long term debt in 2013. At the end of June 2018 they held $97B!!!

The average debt interest for AAPL and MSFT is somewhere between 2-2.5% interest, and prior to the 2017 Jobs act the interest payments were 100% tax deductible. I think that's a key part of why companies did this, they viewed the debt as basically free money after inflation and the tax deduction. Unfortunately this is less tax revenue for the US government and its citizens, so in effect its us the taxpayers that are funding the debt for the buybacks. The NY Times opinion piece fails to mention this aspect. It would be amazing to hear from a CFO on the topic.

Since the 2017 Jobs act companies are now restricted to 30% of their pretax income being deductible to interest. For fiscally responsible companies like AAPL, MSFT, they're nowhere near to 30%, so the intent of this change is largely moot.

Now for a real financial hacker -- i'd like to ask about a wild idea, what happens 2 years out from now supposing that interest rates remain high. All companies looking to raise debt will have to raise at 4%+ interest, and CECL and the fed reserve rate increases will see banks requiring much larger deposits than toda. The bond holders for MCD, MSFT, AAPL, etc, could look to sell to increase their reserves and also get better returning assets. Will megacorps be able to buy back their own debt above fair market value, but above below their principle amount, in effect having earned money on the debt they issued?

[kgwgk]

Companies can also issue debt to pay dividends. The thing you are discussing is not about buybacks vs dividends (is about returning capital to shareholders by either of these mechanism vs not doing so).

> Apple had $0 long term debt in 2013. At the end of June 2018 they held $97B!!!

They also have much more than that in cash (and cash-equivalents). If you want to make a point about companies giving to shareholders money that they don’t really have Apple or Microsoft are not the best examples.