Surprise! The corporate tax cut is going into stock buybacks

Remember how Trump promised us that cutting the corporate tax rate would encourage corporations to invest in America, which would turn into jobs? Yeh, I know. To believe that would require not knowing how economics work.
Corporations only invest in production when they expect more demand. Without demand, corporations will do stuff like this.

Companies will buy back a record amount of their own shares in 2018, with nearly half the purchases funded with the windfall from the Tax Cuts and Jobs Act, according to a J.P. Morgan analysis.
...J.P. Morgan strategists estimate that firms in total will authorize at least $800 billion in buybacks, a whopping 51 percent increase from 2017. Analysts across Wall Street are widely expecting a jump in share repurchases, but J.P. Morgan's forecast is the most aggressive.

stock-buy-backs.jpg
S&P 500 firms are reportedly on track to give $1 trillion in either dividends or share buybacks to shareholders this year. Trim Tabs Research reported $113.4 billion in February alone.
84% of stocks are owned by the top 10%. So this has predictable effects.

Economist William Lazonick of the University of Massachusetts at Lowell has argued for a while now that buybacks encourage "value extraction over value creation" and have "contributed to employment instability and income inequality." In the past couple of years, several economists of a more mainstream bent have weighed in with studies linking increased spending on buybacks to decreased corporate investment.

Until 1982, corporate stock buybacks were rare and of "dubious legality".
The last time stock buybacks spiked was right before the 2008 crash.

socgen buybacks 1.jpg

To be fair, corporations aren't the only ones buying stocks hand-over-fist. Trump supporters are too.

“I hear it every day,” said Jimmy Freeman, a financial adviser at Edward Jones in San Angelo, a city of some 100,000 that’s just east of the booming Permian Basin shale oil fields. “The market’s going up because of Trump. They all think it’s Trump.”

Across middle America, in the towns big and small that voted overwhelmingly for Donald Trump, his most ardent, and financially comfortable, backers are opening stock-market accounts or beefing up existing ones, according to interviews with more than a dozen advisers and brokers. They were spurred on by a stream of presidential tweets crowing about, and taking credit for, the gains throughout 2017 and they remain undaunted now as the rally sputters and the tweeting dissipates.

Which just proves that Republicans don't actually know how capitalism, or even the political system, works.

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Comments

The Aspie Corner's picture

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@The Aspie Corner
central banks king total.jpg

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14 users have voted.

Consumers are the job creators. If Trump wanted to use tax-cuts to improve the general economy he would have cut payroll taxes, which would have at least spurred some additional demand.
The harsh reality is that the performance of every stock (and arguably of every derivative etc.) ultimately relies on a consumer-base with disposable income.
Market fundamentals have been absent for a long time. They didn't exist before the "08 crash and are even more absent now, due to the top-down financial sector bailouts following the "08 crash.
Another crash is definitely in the works (likely by design) due to a propped-up market that relies on (unfounded) investor confidence instead of economic fundamentals.

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14 users have voted.

Mike Taylor

@Mike Taylor for employees.

Whether it was enough to goose demand remains to be seen.

I agree with Yves at Naked Capitalism that stock buy-backs should be illegal.

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6 users have voted.

dfarrah

snoopydawg's picture

We could have told them that. Oh wait....

The bank bailout money should have gone to we the people and that would have stimulated the economy in oh so many ways. People could have paid their mortgages, car loans and credit card bills and bought homes, cars and so many other things and the banks should have been nationalized and we wouldn't be waiting for the next crash that's coming. But no...

Economics don't seem as hard as the PTB want us to think. They just want all the money. Dead people because of no money, food or health care? No problem for the rich bastards that have enough to never have to worry where their next meal will come.

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Maybe democracy exists somewhere as being more than a propagandized lie, but democracy certainly does not exist, and cannot exist, within the global alliance for evil.

Meteor Man's picture

One amendment Warren offered from a list of 17 amendments:

5. (#2060) STOCK BUYBACKS: This amendment prohibits any big bank that gets deregulated under the bill from buying back its stock for the next five years. If the purpose of this bill is to promote lending and economic growth, the banks that benefit from it should not be permitted to funnel any savings into additional stock buybacks.

https://www.alternet.org/news-amp-politics/warren-refuses-play-dead-big-...

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

snoopydawg's picture

@Meteor Man

I'm pretty sure that she knows that this will never, ever happen while the republicans are in charge and Trump is president. But it will never, ever happen when a democrat is president either.

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Maybe democracy exists somewhere as being more than a propagandized lie, but democracy certainly does not exist, and cannot exist, within the global alliance for evil.

Meteor Man's picture

@snoopydawg
The reason cited for Warren's amendments was to call bullshit on Democrats who will vote for this financial abomination. I am reasonably certain she has no expectation of succeeding, but she is making concrete proposals for genuine banking reform and holding Democratic feet to the fire.

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

thanatokephaloides's picture

@snoopydawg

Is Warren up for reelection soon?

I'm pretty sure that she knows that this will never, ever happen while the republicans are in charge and Trump is president. But it will never, ever happen when a democrat is president either.

Actually, that's not written in stone (although it is the way to bet). Example: A Randy Bryce style candidate could run and win. (For that matter, I could run and win the Presidency; it's just slightly less likely!)

Smile

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"I say enough! If Israel wants to be the only superpower in the Middle East then they can put their own asses on the line and do it themselves. I want to continue to eat."
-- snoopydawg

It doesn't seem as if it is getting much coverage. (not that I am surprised.)

https://www.seattletimes.com/business/retail/costco-sales-surge-in-secon...

Costco says extra profit from tax cuts will be shared with employees.
Many retailers have announced plans to spend their tax-cut windfalls on one-time employee bonuses or more enduring wage increases. As retail pay is boosted, Costco intends to keep compensation for its more than 239,000 workers ahead of the pack, executives said Wednesday as the company reported its quarterly results.
The company plans to invest the tax savings in its employees, lowering prices, and other activities that he said will attract more customers and increase sales volumes, ultimately translating to greater profits.

“Some will fall to bottom line, yes,” he said. “We also take care of our employees.”

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Meteor Man's picture

@humphrey
And a gutsy move by management. A few years ago there was a big deal about Costco's stock being downgraded by Wall Street because they were paying their employees too well and providing good health benefits, instead of increasing profits and therefore they were stiffing their stock holders.

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

TheOtherMaven's picture

@Meteor Man

they're better than most of the Big Bidness conglomerations.

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There is no justice. There can be no peace.

@humphrey large employers who said they would give their employees bonuses of some sort. I don't recall all of the names.

https://www.usatoday.com/story/money/2018/01/26/did-your-company-pay-you...

And there are others who are hiking pay, too.

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dfarrah

boriscleto's picture

@dfarrah About 6% of the tax cut money has found its way into the pockets of workers...

https://trofire.com/2018/03/10/1even-fewer-people-are-getting-those-tax-...

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" In the beginning, the universe was created. This has made a lot of people very angry, and is generally considered to have been a bad move. -- Douglas Adams, The Hitch Hiker's Guide to the Galaxy "

https://youpic.com/photographer/boriscleto/

Song of the lark's picture

of rigged for people inside the game and on Wall Street. And like most American rackets, I accepted it. Just like the people who were there first , or the ones with the parking spaces with their names, the corner office , the first class flying perks, year end the bonuses etc. The people who inherited generational wealth they never worked for. Who's parents bought them cars in high school. Who went skiing, or who had golf clubs and memberships thru their parents. I accepted it. I knew as lower middle class kid, in a smaller California town what was important. My goal was get to University and stay away from TPTB who wanted to send me to Asia to kill brown people. But I alway had some faith in the system I was in. I didn't like it necessarily but there it was. Something real and worth working for ---Wall Street, education, unions, politics was real business.
But now... I see...I am delivered unto the unveiling (apocalypse). Every inch of space is bought up and rigged, is administered, is taxed. No sleeping in your car, marijuana, hey it's legal but we got rulezzz and taxes, lots of taxes, everywhere you look immersion into a rigged system cause TPTB can't figure a way out of business as usual.
No way Trump economy deserves 7000 Dow points higher than Obama's. Watch out change is coming. This isn't going to end well. In little more that a decade we add a billion new people on this planet.

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@Song of the lark
"No way Trump economy deserves 7000 Dow points higher than Obama's."

The dems spent 8 years (actually, decades) not giving a rat's but about American workers. Trump is at least talking about workers, wages, bringing businesses back from abroad, and restoring the manufacturing sector. He has long recognized that politicians allowed the downward spiral of the middle class and the gutting of American manufacturing.

The dems said 'too bad, so sad' to the workers.

I believe in giving credit where credit is due.

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dfarrah

The Aspie Corner's picture

@dfarrah Just like Obama, Dubya, Clinton, H. Dubya and Raygun before him.

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mimi's picture

@The Aspie Corner

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Big Al's picture

@dfarrah For what exactly? Talk? It's certainly not coming from the republican party. Trump? Ah, he's saying the same shit all presidents do. That goes back to chicken in every pot days.
I agree with you on the democrats, most people on this blog do.
But neither major political party or Trump are for the working class, they're all controlled and part of the oligarchy that rules over most of us and their actions prove it.

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@Big Al credit to the repubs? They have their own establishment that is as bad as ours - oh, except for the corruption in the dem party when it comes to elections.

I will wait to see the impact of some of Trump's changes before I decide he is all hat and no cattle.

He is taking on some areas - the trade imbalance, workers' wages, workers' workforce participation rate, and restoring manufacturing that TPTB dems wouldn't touch.

So, excuse me if I give a few of Trump's plans a few more months.

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6 users have voted.

dfarrah

Big Al's picture

@dfarrah That's how it works. The Trump taxscam was a republican party effort, with a little help from their democratic party friends. That's the second time I've heard that Trump is working on "worker's wages". Any evidence for that? Or for the worker participation rate, or manufacturing jobs for that matter. People are pulling out all these generics like the democrats did for Obama but they don't have any real examples of how it has actually worked.
You can wait all you want, that's about all anyone is doing anyway. Democrats are still waiting for Obama.

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5 users have voted.

do you think would have been given back under HRC, considering that the dems have ignored working people for decades now.

IMO, it is better than nothing, which is what workers have gotten under the dems. Supposedly, the reduction in taxes on salaries exceeds the Obama temporary cuts on Soc Sec contributions.

And it is only 3 months into the cuts. We don't know the impact yet. We certainly were much more patient with Obama and all of his bs.

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3 users have voted.

dfarrah

snoopydawg's picture

@dfarrah

not like the permanent cuts for big business and the rich f*ckers, but people aren't understanding this. They see that they're getting more for now, but what happens when those tax cuts stop?

Obama and the democrats bitched and moaned about the Bush tax cuts, but just before they expired, they voted to make them permanent.

This is the definition of bipartisanship. Always come together when you can screw the little people.

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Maybe democracy exists somewhere as being more than a propagandized lie, but democracy certainly does not exist, and cannot exist, within the global alliance for evil.

Lily O Lady's picture

@snoopydawg

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"The object of persecution is persecution. The object of torture is torture. The object of power is power. Now do you begin to understand me?" ~Orwell, "1984"

@snoopydawg its not clear there is any tax cut at all. Yes paycheck deductions were reduced giving more take home pay, but stateand local taxes are not deductible. So many get a dribble in the paycheck and then get hammered at tax time.

W Bush cut taxes more than Ray-gun, we know how that worked out.

Prezident ass hat isnt doing anything good for workers...we wont have more steel jobs, noone will be building factories that pay good wages. Scab "right to work states" will continue to get jobs by low bidding on taxes and leeching federal taxes that haveto be paid by the blue states.

Meanwhile, Trump and the turtle Are putting so e of the most politicallymotivated judges on the bench. I wonder how well they will support labor and the average worker.

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5 users have voted.

@snoopydawg its not clear there is any tax cut at all. Yes paycheck deductions were reduced giving more take home pay, but stateand local taxes are not deductible. So many get a dribble in the paycheck and then get hammered at tax time.

W Bush cut taxes more than Ray-gun, we know how that worked out.

Prezident ass hat isnt doing anything good for workers...we wont have more steel jobs, noone will be building factories that pay good wages. Scab "right to work states" will continue to get jobs by low bidding on taxes and leeching federal taxes that haveto be paid by the blue states.

Meanwhile, Trump and the turtle Are putting so e of the most politicallymotivated judges on the bench. I wonder how well they will support labor and the average worker.

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@dfarrah
Because it's being paid for with cuts to Medicaid

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5 users have voted.

@gjohnsit

And all of the already grossly inadequate protections against powerful psychopathic corporate polluters, poisoners and predators are being pulled, so look for such as rates of workplace injury and industrial disease, birth defects and premature deaths to skyrocket shortly, with already skyrocketing planetary extinction of the ecology forming our planetary life support system to show in the local effects of that (pardon the understatement) unnecessary additional boost. No product or ingestible resource will be safe, even for those able to afford luxuries like food and uncoloured, non-smelly and non-flammable water, life indoors and in a 'better (more expensive) and less directly heavily polluted breathing area'.

If Trump will facilitate the more rapid sickening/injuring/killing-for-increased-profit of his fellow Americans, I rather doubt that the concept of living minimum wage levels will 'compete' with that of maximized profits for himself and his corporate buds. He's more likely to drop the entire concept of any legal minimum wage at all.

Remember how abusive Trump'd been of vulnerable workers and smaller businesses who'd done work for him while he cheated them so badly and routinely because they couldn't afford to sue him for their money? Of course you do, I wish others did.

Possibly the saddest thing is, I still feel we're better off with him than with the Clintons and their prepackaged and prepaid Mutual Assured Destruction all set and ready to go, perhaps even before they'd begun to rent out White House bedrooms, auction off unwanted furnishings, grope/rape the domestic staff or anything...

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Psychopathy is not a political position, whether labeled 'conservatism', 'centrism' or 'left'.

A tin labeled 'coffee' may be a can of worms or pathology identified by a lack of empathy/willingness to harm others to achieve personal desires.

@Ellen North What you are talking about has been going on for decades, well before Trump took office.

The US was declining in various measures well before he took office.

Much has already been crapified, again, well before Trump emerged. And neither the dems or the repubs were much into doing anything about it.

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dfarrah

@gjohnsit

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dfarrah