Stock Buybacks are Great for Working Americans
April 19, 2018
Buybacks are Great for Working Americans
The good news keeps coming from the Tax Cuts and Jobs Act (TCJA): companies continue to award workers bonuses, pay raises, better benefits, and provide more job training; employers are adding new jobs; investment and manufacturing are moving back to the United States; utility bills are lower; and businesses are expanding charitable giving.[i]
Yet, TCJA opponents think they’ve found a weak spot—stock buybacks. Opponents argue that companies are using tax savings for stock buybacks and dividends, by which “the wealthy” reap benefits at the expense of hardworking Americans. The critics seem not to comprehend that the economic pie just got bigger for all Americans thanks to TCJA, and stock buybacks also directly benefit working people.
First, investing isn’t just for the wealthy. Over half of American households own stock, either directly or indirectly.[ii] In fact, worker retirement accounts (company pension plans, 401(k)s, IRAs, etc.) hold 37 percent of all U.S. corporate stock.[iii]
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Workers benefit when stock values rise. Stock buybacks increase the value of retirement accounts and personal equity holdings. If investors continue holding stock instead of selling it back to the company in a buyback, its value will increase because there are fewer shares in circulation. Higher stock values increase the funds in retirement accounts, boosting workers’ retirement income.
Even workers who don’t own stock benefit from new pro-growth investment. Investors who receive cash from a dividend or selling their shares in a buyback can use those funds to invest in other companies that are innovating and expanding. Moving investments from a mature company that may not be expanding to growth companies fuels new ideas and more jobs.[iv] Innovation boosts productivity, which raises wages. American workers receive more job opportunities and larger paychecks from these more productive investments made possible by stock buybacks.
