Big Tech’s Big Lie: Instead Of Hiring, Tech Companies Spent Tax Savings On Buybacks…(3…)
by Tyler Durden
ZeroHedge.com
Mon, 04/15/2019
Back in 2017, when they were making their supportive case for Trump’s tax cut and offshore tax repatriation holiday, the largest US technology companies promised they would go on hiring sprees and boost the economy. Just over a year after getting what they wanted, fund flow data shows that – contrary to Goldman’s recent calculations – these firms gave most of their huge tax savings to investors in the form of buybacks.
According to Bloomberg calculations, the top 10 US tech companies spent more than $169 billion purchasing their shares in 2018, a record 55% surge from the year before the tax changes. And, according to TrimTabs, the industry as a whole authorized the greatest number of share buybacks ever recorded, totaling $387 billion: more than triple the amount in 2017.
While many analysts have been writing countless research reports in recent weeks defending the practice of stock repurchases, which as “the most important trader on Wall Street” recently explained was illegal until 1982 due to “market manipulation” concerns, the truth – much to the chagrin of banks like Goldman which has written no less than three report in the past month defending stock buybacks against a legislative onslaught that seeks to curb or ban outright corporate repurchase, the truth is that while buying back stock is great for shareholders and company executives as it boosts a company’s earnings per share and increases the value of the holdings of shareholders, including insiders whose compensation is frequently linked to stock return, stock repurchases do little if anything for the economy, especially when compared with other potential uses of that money, including hiring more workers.
When Trump signed the Tax Cuts and Jobs Act into law in the final days of 2017, it cut the corporate tax rate to 21% from 35%, while offshore profits could be repatriated at a special rate of 15.5%, and was meant to encourage companies to bring the money back to the U.S. Once back, the theory went, the companies would invest it domestically, boosting the economy.
They did not. Instead, much of the proceeds were spent on buybacks.
Overall, US companies ended up saving 30% in tax expenses overall in 2018, according to ITEP, and as we have reported on numerous prior occasions and Bloomberg noted over the weekend, “Tech companies were the main beneficiaries of the cash repatriation provision.” Before the law, the largest overseas cash hoards among U.S. companies were held by Apple, Microsoft Corp., Cisco Systems Inc., Oracle Corp. and Alphabet. It is these companies that in the past year unleashed a historic buyback spree the likes of which have never before been seen.
The verdict, at least according to Bloomberg, is that “the U.S. has given up hundreds of billions of dollars in corporate tax revenue for the promise of other benefits.”
The Rest…HERE
