Heard on the Street: Stock buybacks and lavish executive pay make easy targets for raising more tax revenue, but some proposals to curb them would create more problems than they solve
And, in a critique of the corporate tax cuts passed during the Trump administration, Americans for Tax Fairness pointed out that much of the windfall was used for buybacks and that they “mostly enrich the already wealthy, including CEOs, because rich people own most corporate stock.” Well, yes, but the same could be said of any dollar of profit earned by a company.
What does make a difference is if it is misspent. A politician who would never think to tell a local restaurant owner who just had a good year to use the windfall toor keep the money in the bank earnings peanuts instead of giving herself a raise. Using tax policy to sway that sort of a decision by big companies could lead to lousy investments.
The worst thing one can say about buybacks is that executives laden with stock options have an ulterior motive to choose them instead of dividends as a way of returning money to shareholders since it can increase the value of those options. And companies admittedly also are pretty awful at stock market timing.
Quarterly dividends tend to be a lot more stable, but not necessarily better for shareholders. A long-term owner of a company likewhich only returns cash through buybacks, can choose to realize a profit and pay taxes only when the money is actually needed. Capping executive pay at a certain ratio would raise problems too. Consider two similarly compensated CEOs, Daniel O’Day of
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