Time to Ban Stock Repurchases

It is time to make dividends, rather than capital gains, tax advantaged. They should be deductible against the companies income (akin to LLCs) and shouldn&#x27;t incur payroll taxes but otherwise should be taxed as income. This would make them more valuable for lower income citizens who suffer under the payroll tax setup, and less valuable for the wealthy since they would be paying a high marginal tax rate on them. It would distribute capital ownership more widely and make planning a retirement income stream much easier to accomplish.<p>Capital gains should be taxed at windfall rates, say income + 10%.<p>Prioritize repeatable, stable profits over swing-for-the-fences highly-leveraged moonshots, and watch how many of these problems disappear.

So I don&#x27;t get why stock repurchases are being singled out here. The original model for corporations was that companies make a profit, pay taxes on that and then either retain those profits, return them to the shareholders in the form of dividends or both.<p>This model has disadvantages. Not every shareholder wants to receive a dividend they then have to pay taxes on. The company also drops in value by the amount of money disbursed, which has its own issues (eg triggering wash sale rules).<p>Share buybacks are an alternative to returning money to investors. You use that same pool of money to buy shares on the open market. The company has lost that same asset (the disbursed cash) to those investors who want to receive that money (ie by choosing to sell) and the stock price remains unchanged.<p>So this is (IMHO) concentrating on the wrong problem. The real problem is that companies can borrow money to return to shareholders through dividends or buybacks rather than repatriating foreign profits, which would otherwise make those profits subject to US taxes. So this is a near-indefinite deferral of US taxes.<p>In my opinion, we need to treat any form of borrowing as effective repatriation of retained foreign profits that then get taxed accordingly.<p>As for bailout funds, I&#x27;m totally fine with all of these restrictions until the loan has been repaid:<p>1. Any borrowed funds are treated as repatriation of foreign profits as per above. Why bailout companies who are choosing not to pay US taxes?<p>2. A freeze on executive compensation, including no extraordinary bonuses, additional stock grants and so forth. Additionally, all such compensation from the previous 12 months needs to be clawed back.<p>3. No disbursement of any kind to investors while the bailout loan remains unpaid. This includes dividends and buybacks.<p>Focusing solely on stock buybacks is misguided.

Why should there be a blanket ban on stock repurchases? If a company has excess cash, you&#x27;re advocating they can&#x27;t put that cash to work &quot;betting&quot; on their future performance?<p>I however do agree if a company takes a recent government &quot;bailout&quot; they should be restricted from buybacks until they payback the loan&#x2F;bailout.

One option could be to restrict repurchases (and dividends) that would take the company below some threshold of savings, based on expenses. For example: any company worth over $X needs to hold a years worth of expenses in hand at all times - if they go below, they cannot issue a dividend or buy back any stock.<p>Of course, the details matter enormously here, including how things like debt factor into the equation.