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Wharton's Jeremy Siegel and William Lazonick: Have Stock Buybacks Gone Too Far ? Podcast

edited May 2019 in The Bullpen
FYI: Fueled by the lower corporate tax rate, share buybacks among S&P 500 companies shot to a fourth consecutive record in the last quarter of 2018, according to Standard & Poor’s. What’s more is that the lower tax rate enabled dozens of profitable Fortune 500 companies such as Amazon and IBM to avoid paying federal taxes last year, according to the Institute on Taxation and Economic Policy. Tax cut proponents had argued that companies would have more money to reinvest in growth and expansion, and eventually benefits would flow to employees and the economy overall, but critics say those effects so far have been limited.

Corporations like buybacks because they reduce shares outstanding and boost earnings per share, typically leading to higher stock prices — a boon for investors and also for executives, who often earn most of their compensation through stock options or grants. In the first three quarters of 2018, stock buybacks rose 52.6%, while capital investment increased 8.8% and research and development went up 12.5%, according to Forbes. The large amount of tax savings devoted to buybacks prompted Senators Bernie Sanders and Chuck Schumer to say they plan to introduce legislation to ban the practice unless a firm first makes investments in workers and communities.
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