Where has all the money gone...?

From the American Prospect - An excellent summary of the origin of runaway inequality and what we  can begin to do about it.

Building Back Better Through Taxing Stock Buybacks

For the past four decades—ever since Ronald Reagan’s appointees to the Securities and Exchange Commission changed a rule and opened a floodgate— stock buybacks have been a major contributor to the misshaping of the American economy.

When the top executives of a publicly traded corporation decree that their company will buy back a set amount of the company’s shares, it increases the values of the remaining shares, since the underlying value of the company remains the same but the number of outstanding shares decreases. As those same top executives tend to be very handsomely rewarded for increases in the price of the company’s shares, buying back stock is a legal and apparently painless way of making themselves m-f–ing rich. Nice work if you can get it.

The practice of buying back shares went all but unnoticed by economists until the middle of the last decade, when University of Massachusetts economics professor William Lazonick documented that the sum total of buybacks by the corporations on the S&P 500 over the preceding decade approximated the sum total of their profits. Rather than investing in new equipment or research and development or (God forbid) wage increases, America’s corporate sector was buying back its own stock, to the advantage of their leading executives and their shareholders (chiefly, of course, large shareholders), and to the detriment of, well, the economy at large. Lazonick published his findings in the Harvard Business Review and has continued to cover this subject through a host of articles in the Prospect and other publications.

Over the past decade, the S&P 500 have repurchased more than $5 trillion of their own stock, and the rate of repurchasing is steadily increasing: They’re pledged to buy back $1 trillion in this year alone. According to a New York Times analysis, Apple devoted $423 billion on buybacks over the past decade, while spending just $233 billion on capital expenditures and R&D.

It makes perfect sense, then, that a one percent tax on corporate buybacks is part of the Build Back Better bill that the House has passed and sent to the Senate. Over the next decade, the tax is expected to yield roughly $124 billion to pay for climate investments, workforce development and such that our corporations wouldn’t get around to on their own.

Harold Meyerson