Quote:
Originally Posted by Huehuecoyotl
These numbers are pretty crazy
Quote:
As a new joint report from the Roosevelt Institute and the National Employment Law Project by Katy Milani and Irene Tung shows, from 2015 to 2017 corporations spent nearly 60 percent of their net profits on buybacks.
If that's true, it'd be pretty hard to see how the Republican tax plan is going to spur some massive investment spree. Companies already had a ton of opportunity to invest and they've decided they didn't need to.
http://theweek.com/articles/787966/b...medium=twitter
Man, that is a terrible article. Putting aside the terribleness of the article, I don't think Hue's conclusion is right. (And as a preface, I don't actually like the tax plan.)
I think most economists would say that it's desirable for cash to move from firms
without investment opportunities to firms
with investment opportunities. Under the previous tax regime, the treatment of profits in foreign subsidiaries was a big problem in this regard - firms had an incentive to keep their foreign profits in the foreign subsidiary*** rather than distributing it to the parent company where it could be paid out to shareholders or invested in the U.S. So there was a big friction causing firms to retain cash even when they didn't have any good use for that cash.
The changing tax policy makes it easier/less costly to bring that money back to the U.S., where it can be put to better uses, whether those uses are investment in the firm or distributed to shareholders. The fact that most of the profits are being distributed is simply a sign that large profitable firms don't see a lot of opportunity to invest, so they're distributing money to their shareholders rather than letting it sit. Those shareholders, in turn, are presumably investing in other smaller firms that
do have investment opportunities. The effective transfer of cash from low-opportunity firms to high-opportunity firms is a good thing.
You can argue about whether that's actually happening, but the fact that firms are paying out most of their money via share buybacks is not at all a sign that the tax plan will be unsuccessful in spurring massive investment. It's just not going to spur massive investment in the firms that have lots of cash to distribute.
***Even though the cash was held in the foreign subsidiary, it was most likely already sitting in a U.S. bank, just unavailable for investment in the U.S.