comment: >
  
  You forgot the part where capital gains are taxed a much lower  rate than income, and only at the point of sale instead of annually.  
  In combination with existing tax law it allows for unproductive people to pay lower tax rates than people who actually work for a living, such as doctors and teachers.
context: I’ve always considered stock buybacks to be a mechanism for extinguishing excess capital. Every company should have a capital allocation prioritization for what to do with excess cash. Reinvesting in the business via capital expenditures that return value, dividends, and stock buybacks are all options, each with risks and consequences. >
  
  They weren't illegal before hand.
  The law wasn't clear if they were a form of stock price manipulation.  So most companies stayed away from it, but they still happened.
  The sec simply clarified when it is perfectly legal.
  It's should be no more or less illegal, than issuing more stock to raise capital...
  If they no longer have the need for the capital, they should buy the shares back to gain more control of their company. >
  
  Tax stock buybacks the same as corporate profits. >
  
  It's not a profit. You could apply a special sales tax to buybacks. >
  
  You realize they are taxed right now at the same rate as any stock sale.
  You dont tax the stock sale, you tax the stock sale's profit.
  If I invest 100k in a stock, and they offer me 110k to buy it back, I pay taxes on the 10k.
  I didn't pay taxes when I bought the 100k worth of shares, and the company shouldn't pay taxes when they buy the 110k >
  
  We're missing each other's points because of reddit. The guy above me wanted to tax buybacks as profits which doesn't make sense - i was suggesting that what he's really asking for is to apply a tax to the buyback.
  I understand that this is not currently the way the code is written, but it could be done if the policy goal is to discourage buybacks. You could write it so it only applies to original issuers of the shares so it doesnt have implications for private citizens. >
  
  I guess.  I just see nothing wrong with buybacks.  Zero.
  It encourages investment, and better run companies. >
  
  How does it encourage investment and better run companies? If a company needs to raise funding, they would issue more stock. All the large stock buybacks I've seen have been done with cheap government loans. They occurred in 2008 using the insanely cheap cash the feds kept dumping into banks. Then again under Trump's massive tax cuts for corporations. And again with misused and abused covid relief funds. This effectively acted as a massive transfer of wealth from all citizens who pay taxes to the ever smaller percentage of citizens who own stocks.  
  In 2019, right after Lowe's CEO said their employees were their greatest asset, Lowe's laid off thousands of their most experienced workers while issuing $10 billion in stock buybacks, the stock buybacks fueled by Trump's tax cuts. Lowe's then turned around and offered the people they fired their jobs back, at lower pay, and in some cases lower pay than they'd originally been hired at.   What beautiful reinvestment.  
  I've yet to come across any article or study showing stock buybacks as good for the economy. Only think tank bullshit, funded by the wealthy elites who benefit from the broken system. >
  
  It incentives investment by pay back investors at a gain. 
  If companies don't return dividends, and not do stock buy backs over time their stock just dilutes every time they issue new stocks.
  The more investors, the harder it is to run a company. The more beholden they are to the investors. Fewer investors let's them run the company better. 
  If issuing shares is OK to raise capital, once they no longer need the capital they should buy those shares back.
  You haven't stated one thing wrong with buy backs.  You have simply claimed that the money wasn't theirs so they took advantage of cheap money. 
  Why are share buy backs wrong?  
  Is it also wrong to issue shares? >
  
  Nothing wrong with stock buybacks for your above stated purpose, except it is the same institutional line from the think tanks and shows no evidence of improving the economy (still haven't been shown any evidence that stock buybacks improve the economy). My main issue is the blatant abuse of government financial policy to buy back stocks with money that was meant to stimulate economic and job growth. Something that has occurred repeatedly in the last decade.  
  This method of financial grift exploded after 2008. Government bailouts of bankrupted financial institutions then turned around and awarded massive golden parachutes and bonuses to the same twerps who caused the crisis. There was massive public uproar over these assholes awarding themselves with public provided funds. So now massive buybacks are used to transfer the wealth meant for the workers to investors and owners. Doesn't cause the same uproar because it is sold as stock prices went up, so everyone is doing better! (Except the thousands laid off by Lowe's.) >
  
  Once shares are issued and sold on the open market... why should there be a law against buying back the bits of ownership of your corp  that you sold away? 
  I know this can lead to an artificially inflated share price, but the answer to that is due dilligence - dont buy overpriced shares. Or rather understand that when you buy stocks youre buying fractional ownership in a corp. Dont overpay. >
  
  This make perfect sense.  I never understood why people get upset over stock buybacks. >
  
  When your company spends $1 billion dollars on stock buybacks and gives no one raises because of it, people might have a small reason to abhor stock buybacks. >
  
  The thing with this view is that it assumes that companies pay their workers out of generousity. 
  The way it's supposed to work is that there is a competitive market for labor and liveable wages are just what needs to get paid to get the work done. After all, the incremental productivity of each worker should far exceed their pay (otherwise this enterprise is likely not accretive to the macro economy).
  Measures to improve imbalances in the labor market; transparency requirements in job descriptions, unemployment insurance, and yes organized labor, all promise to help. 
  Making corporate finance less efficient by "banning" a common method of returning capital to owners may seem satisfying. A portion of that capital is likely only there at the expense of labor. But this is a symptom of imbalance, not the cause. 
  Put simply, fix the labor market, then let companies who are still profitable after well compensating workers return whatever profits they want to owners in the most efficient way. Those owners are investors who backed a company who pays well, we should all want them to be rewarded. >
  
  You realize livable wages aren't a thing for over 60% of Americans right? The CEOs had thier time to use fancy words to fleece everyone. The bottom line no matter how much fancy language you use is that business owners are fucking greedy and aren't paying a liveable wage and still always want and need more. >
  
  Why is banning stock buy backs the response? It just seems like there are much better ways to address the power imbalance between labor and capital then to ban stock buy backs. >
  
  Multiple measures need to be taken. You honestly don't see any problem with the company using all of it's money on buying back stock so that it is unable/unwilling to even give col raises? You must be a person of true privilege. >
  
  
  Multiple measures need to be taken. 
  
  Ok. I don’t see why banning stock buy backs would make a meaningful contribution to that pursuit.
  
  You honestly don't see any problem with the company using all of it's money on buying back stock so that it is unable/unwilling to even give col raises?
  
  Banning stock buy backs won’t make companies more likely to increase employee compensation.
  
  You must be a person of true privilege.
  
  Nope. I just understand how companies work. Banning stock buy backs won’t have any serious impact on employee compensation. >
  
  Stock buybacks and offshore tax havens  were both gifts from Reagan. They should both be done away with and have been major factors in creating the terrible wealth inequality we must endure. >
  
  Stock buybacks are essentially dividends an organization doesn’t have to pay tax on. All they are is a simple tool to return equity back to shareholders. The stock buyback “issue” is a huge red herring and not a real issue. Anyone with basic financial literacy should understand this as just another way for corporations to return equity to their shareholders. Unless we fundamentally alter how our financial markets and public companies operate then they will seek out avenues for this exchange. 
  If stock buybacks are outlawed then all you’ll see is a shift back towards dividends. You could argue in favor of this shift because it generates additional tax revenue for the state. But stock buybacks as a legal financial mechanism are a boogeyman, non-issue compared to the larger problems of late stage capitalism. >
  
  Dividends incentivize pricing stocks as long term investments whereas stock buybacks incentivize growth stocks. Growth stocks are ore volatile. Volatility is generally bad. >
  
  I’m sorry and not trying to be rude but none of these statements make any sense. What evidence exists that stock buybacks are incentivizing growth in materially different ways than dividends? And what does volatility being generally bad mean in this context? Are we just going to ignore the inherent value in volatility helping drive innovation in a capitalistic system. 
  I’m trying to see what the case for outlawing stock buybacks here is and I don’t see it. >
  
  Moral hazard, allow the board to dramatically increase short term price at the potential cost of long-term growth, and even can increase risk to business because they have less cash if the economy turns.
  It's just a way for people who want to sell to get their buy side taken care of quickly. >
  
  
  Moral hazard, allow the board to dramatically increase short term price at the potential cost of long-term growth, and even can increase risk to business because they have less cash if the economy turns.
  
  So basically no risk to anybody involved with planning the buyback since executives are always only looking at short-term profits anyways?
  And if the company runs in to trouble because of the buyback, just do some layoffs and the stock price will rebound anyways >
  
  You do realize that the reverse of a buyback is issuing shares, right? A company can always raise more money by reissuing the stock they bought back. Stock buybacks work by taking shares out of circulation and increasing the earnings per share. Essentially, instead of $1000 of profit being shared amongst 100 shares, now it is $1000 shared amongst 90 shares. >
  
  I understand what a stock buyback is. I'm saying our current system only incentives short-term thinking. All that matters is the stock price because you have to keep the shareholders happy.
  Issuing new stock lowers the stock price, layoffs tend to raise it. >
  
  Dude, you have it backwards. Stock buybacks can be reissued to raise funds. Companies can literally buy back their own stock and reissue it to make back the money. It is literally the company investing in itself and rewarding shareholders at the same time. >
  
  I'm not even sure what you're trying argue. No one is confused about companies being able to issue more stock. That was never in doubt.
  I think I misinterpreted the previous posters comment about moral hazard to be why a company would hestiate to buy back stocks when now I think they meant the moral hazard was a reason to ban buy backs (which I agree with).
  However that makes none of what I said false. If a company needs money, issuing stock is not their go-to move because it lowers the stock value. If they can find the funds another way, and layoffs are a common answer, that's what they'll do.
  The whole point is companies want a high stock price and will sacrifice tomorrow's profits if it increases today's stock price >
  
  I don’t see a problem with it. People invest in businesses to make money, what difference does it really make whether that money comes from shareholders paying themselves dividends or buying out other shareholders? >
  
  I think the main argument is the money spent on buying back a companies own stock is money not being spent on new investments, so they aren’t contributing to growth. 
  So rather than training new employees, or rewarding your existing employees, you are concentrating the wealth of a company into your current shareholders without really adding to economic growth in any way. >
  
  That same argument applies to dividends. Without any way of getting a return from their investments, why would you expect potential investors to deploy their money? >
  
  Dividends at least create a taxable event.
  So no, they aren’t the same. >
  
  A taxable event, such as investors earning capital gains on the stock they sell back to the company, and then paying tax on that? That kind of taxable event? >
  
  Assuming they sell. Stock buybacks by themselves don’t create a taxable event. So no. >
  
  By definition, someone has to sell. The company can't buy its stock from nobody >
  
  Jeez, some of these replies are interesting. Stock buybacks just allow investors to trigger the taxable event when want it whereas dividends don’t offer that same option. >
  
  Stock is just a fractional ownership instrument, why shouldnt a business be able to buy back itself? The market is already going to price the fact that stock price going up is the result of buy backs either way >
  
  Because socialists don’t value freedom. >
  
  Yes, I don't value the freedom to starve to death while someone else lives in luxury just because they were born into wealth 50 years ago. >
  
  Oh wow.  We’re talking about stock buybacks.  All it does is reduce the amount of outstanding shares to the public.  The end result is better dividends and investment returns for people like your grandma and grandpa who are living on a fixed income.
  This is not a political issue.