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Tags: congressional | democrats | wall street | buyback

Congressional Democrats Seek to Halt Wall Street's Buyback 'Addiction'

Congressional Democrats Seek to Halt Wall Street's Buyback 'Addiction'
(G0d4ather/Dreamstime)

By    |   Thursday, 22 March 2018 03:02 PM EDT

Sen. Tammy Baldwin, D-Wis., has unveiled legislation designed to rein in corporate America’s addiction to stock buybacks by giving workers a say in how their company’s profits are spent.

A stock buyback, also known as a "share repurchase," is commonly defined as a company's buying back its shares from the marketplace. You can think of a buyback as a company investing in itself, or using its cash to buy its own shares.

The Reward Work Act improves disclosure of repurchases and requires public companies to give workers the right to directly elect one-third of their company’s board of directors.

Since President Donald Trump’s tax bill passed, corporations have announced more than $225 billion in stock buybacks, “overwhelmingly benefiting corporate executives and wealthy shareholders, and leaving the middle class behind,” Baldwim claims.

“I want to stop the growing trend of corporate stock buybacks and make sure our economy starts rewarding hard work, not just wealth. People are fed up with the powerful always winning in Washington and I am too," Baldwin tweeted.

“Corporate profits should be shared with the workers who actually create value. It’s just wrong for big corporations to pocket massive, permanent tax breaks and reward the wealth of top executives with more stock buybacks, while closing facilities and laying off workers,” Baldwin said in an official statement.

“The surge in corporate buybacks is driving wealth inequality and wage stagnation in our country by hurting long-term economic growth and shared prosperity for workers. We need to rewrite the rules of our economy so it works better for workers and not just those at the top," Baldwin said. 

"This legislation makes it clear that empowering the voices of our workers and investing in our workforce is more important than using tax breaks and corporate profits to reward shareholders with more stock buybacks.”

The Reward Work Act repeals the Securities and Exchange Commission (SEC) 10b-18 rule that makes it easier for corporations to buy back their stocks. It also ends corporations’ ability to buy back their stock on the open market, though repurchases through tender offers—which are subject to greater disclosure—will still be allowed. Finally, the legislation requires one-third of corporate boards to be directly elected by the company’s employees.

The legislation is cosponsored by Senators Elizabeth Warren, D-Mass., and Brian Schatz, D-Hawaii, and has the support of the AFL-CIO, Americans for Financial Reform, Take on Wall Street and Public Citizen.

To be sure, U.S. corporations have announced more than $218 billion in share buybacks since Congress enacted the Republican tax overhaul in December, an investment research firm said in February.

The California-based firm TrimTabs, which tracks corporate buybacks, said the value of buyback programs announced in February alone surged to $153.7 billion from $59.9 billion in January, smashing a previous monthly record of $133 billion in April 2015.

“Activity has certainly accelerated. Buybacks increased for five consecutive months beginning in July 2017 and have exploded in February,” TrimTabs analyst Winston Chua told Reuters.

Meanwhile, U.S. Senate Democrats said in a separate report that $209 billion worth of U.S. corporate share buybacks have been announced since Jan. 5, claiming the figure shows that the Republican tax overhaul largely benefits corporations, corporate executives and wealthy shareholders.

Long a flash point for partisan disagreement in Washington, the tax cuts are expected to play a major role in Nov. 6 congressional mid-term elections, which will determine whether Republicans can maintain their majorities in the Senate and House of Representatives.

Republicans including President Donald Trump, who signed tax legislation into law in December, have joined U.S. companies in promoting a recent spate of bonuses, pay raises and other benefits as evidence that the tax overhaul is benefiting workers.

A spokesman for Senate Republican leader Mitch McConnell said Democrats are losing the argument on taxes and dismissed the buyback report as a desperate attempt to change the subject.

The report by Senate Democrats spans more than 30 buyback programs announced by companies from a range of industries including banking, energy, manufacturing, retailing and technology.

Defenders of buybacks argue that returning extra cash to shareholders is better than hoarding the cash in overseas bank accounts. 

"Even for Washington, this strikes me as incredibly stupid," said Jonathan Macey, a corporate law and finance professor at Yale Law School.

"The idea that banning stock buybacks is going to help the economy ignores the fact that this money doesn't disappear. It's returned to shareholders who can spend it," Macey told CNN.

(Newsmax wire services contributed to this report).

© 2024 Newsmax Finance. All rights reserved.


InvestingAnalysis
Sen. Tammy Baldwin, D-Wis., has unveiled legislation designed to rein in corporate America’s addiction to stock buybacks by giving workers a say in how their company’s profits are spent.
congressional, democrats, wall street, buyback
748
2018-02-22
Thursday, 22 March 2018 03:02 PM
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