[Delumine]

Stock buybacks should be outlawed. They're really a waste for the economy; cash is being used up to buy up imaginary assets to make your previously-owned imaginary assets more valuable.

Why not use that money on more impactful things? Like higher salaries, social programs, or just R&D in general.

[jcranmer]

The number I've not seen that I most want to see is the amount of share buybacks compared to the number of shares the company gives to its employees as RSUs or stock options.

Given that tech salaries tend to have a sizable pay component made up of stock, my gut feeling is that share buybacks are in large part a roundabout way to pay their employees.

(Now, let's also go fix the laws that make it tax-advantaged to pay people via such an indirect manner.)

[likpok]

Is it tax-advantaged? My impression is that RSU costs count as cash at grant time, which is a good deal (for the company) when the stock is going down but a bad deal when the stock is going up. The RSUs you get are counted as ordinary income when they vest.

Whether this is a good deal for the employee is a bit complicated: you're effectively holding stock for 4 years but taxed at ordinary income rates (as opposed to long term capital gains). On the other hand, if the stock goes up you've locked in being paid substantially above market. During the hot market times this effectively was an option: if they stayed they got stock granted at a low price, but they could leave if a different company was paying more.

Private companies can offer ISOs which do have a nice tax treatment, but this is all predicated on public company buybacks where that doesn't apply.

[matwood]

> Why not use that money on more impactful things? Like higher salaries, social programs, or just R&D in general.

Because the money would not be spent on any of those things. Buybacks are a favorite boogeyman, but they are just tax efficient dividends. They certainly give people something to complain about though.

[bungeonsBaggins]

> Buybacks are a favorite boogeyman, but they are just tax efficient dividends.

"Tax-efficient" is weasel language. If the money was spent as dividends it would be taxed and then would benefit someone besides the executive suite and investors. If they were unwilling to pay that tax, then the money would need to be reinvested in the company in the form of higher salaries or R&D. So yes, if buybacks were illegal the money WOULD go to one of these things.

[gimmeThaBeet]

It's not really weasel language, the potential taxable events are limited to the people who are selling their shares back to the company instead of every shareholder.

The potentially taxable dollars are the same (non-withstanding the buyback excise tax), it's just shaped differently.

[onlyrealcuzzo]

> Like higher salaries, social programs, or just R&D in general.

Because that could be a waste as well.

Stock buybacks are just a tax-advantaged form of dividends (and shouldn't be legal for those reasons). Just do dividends.

[gimmeThaBeet]

I would argue in a global sense its more tax-efficient that tax-advantaged (which is admittedly pedantic).

The main idea people need to remember is that if a company buys back its stock, someone else is selling it.

For equality sake, assume that it's been held for a year (so both the cap gains and equivalent dividend would be taxed at the same rates).

For an X amount of dollars, dividends and buybacks are going to generate the roughly a similar kind of 'tax footprint' for lack of a better term. The potential taxable events are just filtered to 'the entities that wanted to sell their shares' vs 'every equity holder'.

[onlyrealcuzzo]

> For equality sake, assume that it's been held for a year (so both the cap gains and equivalent dividend would be taxed at the same rates).

A dividend is always taxed as income.

If you inflate the price of the stock to pay the dividend (stock buyback), it's taxed as capital gains.

[gimmeThaBeet]

In the average case it's a fair assumption the dividend is going to be qualified, and the owner is going to meet the 60/120 holding period, which effective means it will be taxed at cap gains rates. If not that's kinda their own deal.

I think people fixate too much on pricing dynamics. Kind of at a Gaussian surface level, the simple way to explain a price is eps * earnings multiple, where your inflated demand dynamics get lumped in with the multiple. The issue is an earnings multiple encompasses so much information as to be of little use, it's not trivial to quantify anything from it.

Let me be clear, buybacks can be a bad use of capital. The stock can go down to any number of factors, general market downturn etc. A buyback is an investment of the company in itself, and investments can be bad.

But if you have a number of earnings and a number of shares, if you reduce the number of shares, you have more earnings per share. At a constant multiple, an increase in eps should dictate an increase in price. That's as real as you and me.

[densh]

Stock buybacks are simply tax efficient dividends.

[Jochim]

Great argument for why we don't need both.