The Great Enduring Myth That Stock Buybacks Hurt Workers

The Daily Signal | 2/15/2019 | Staff
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Adam Michel focuses on tax policy and the federal budget as a policy analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

There’s a pervasive myth out there that corporate stock buybacks are a sign of corporate self-indulgence, leaving workers hung out to dry and weakening the American economy.

Reality - Opposite

Economic reality is the exact opposite.

When a company repurchases its stock, corporate executives are often humblingly admitting that their business isn’t as profitable as it once was.

Investments - Endeavors - US - Economy

They are also helping move unproductive investments into more productive, job-sustaining endeavors, which ultimately strengthens the U.S. economy.

When businesses have unused profits, they can give part of them back to their investors by repurchasing their stocks at market value—just like you or I could—or by paying out a dividend.

Investors - Profits - Enterprises

That allows investors to reinvest the unused profits in other, more profitable enterprises.

Harley-Davidson’s announced plant closing and simultaneous $15 million in stock buybacks is a popular example of the supposed evils of corporate greed.

Millions - Shareholders - Repurchases - Investors - Money

By transferring the millions back to shareholders through repurchases, those investors are now able to redirect that money to other investments that have a more promising future. Harley-Davidson’s sales have been declining for years.

Those new investments will also need workers to build, design, and manufacture whatever the future demands.

Harley-Davidson - Money - US - Market - Bikes

If instead, Harley-Davidson poured more money into a U.S. market that did not want to buy its bikes, the investment would still not sustain long-term jobs. Rather, it would just prolong the company’s decline, and ultimately, everyone—including the employees—would be worse off.

Sens. Charles Schumer, D-N.Y., and Bernie Sanders, I-Vt., would require businesses to raise wages and offer more generous benefits before they could repurchase their own shares.

Sen - Marco - Rubio - R-Fla - Concern

Recently, Sen. Marco Rubio, R-Fla., voiced a similar concern, that stock buybacks might be hurting workers. He proposes raising the capital-gains tax rate on repurchased shares...
(Excerpt) Read more at: The Daily Signal
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