The whole "line must always go up" is completely a self-imposed injury of our tax code. There is no reason companies can't remain healthily stagnant for long periods of time and just pay out their earnings as dividends or stock buybacks. But both are heavily disincentivized by our current tax code vs all earnings coming from gains in stock value.
To the extent that's true clearly we need a wealth tax.
But also it's not true. Dividends are taxed at the capital gains rate which is quite low, and for tax deferred investment schemes (which is to say, retirement savings) they're not taxed at disbursement and can be reinvested tax-free.
I think you're very confused about the mechanism behind a stock buyback. It's a way to make the stock value increase. There's no other point in doing it.
Tax deferred investments schemes are also subject to annual caps. And a tax on a dividend is still higher than a tax on "unrealized" capital gains.
> I think you're very confused about the mechanism behind a stock buyback. It's a way to make the stock value increase. There's no other point in doing it.
There is a LOT of very misleading information being pumped out there by the media about stock buybacks - almost anything you read is almost surely wrong.
If I take your investment to start a business venture, the venture is a huge success, the responsible thing to do would be to give you your money back + your share of the profit. While the share price of the remaining shares remains high or even goes up, I am still essentially "shrinking" the company.
While some orgs issue and buyback shares for money management reasons (or stock price manipulation), they are also a perfectly valid mechanism for big companies with lots of money to responsibly shrink themselves. Instead of chasing the line up and constantly asking for more investment, they are choosing to be a smaller and more profitable. It also turns huge corporate windfall gains into taxable events. I don't think they should be controversial in any way.
I was not advocating for or against stock buybacks (I have opinions but they're not relevant).
I was just pointing out that you were in error by lumping stock buybacks with dividends and contrasting both to "earnings coming from gains in stock value." Stock buybacks work by causing gains in stock value.
I'm contrasting it to corporations that never do buybacks so the only way you make money off of their stock as an investor is purely through infinite speculation.
Interesting, I've never made that connection. Not an easy fix though I think; taxing increase in market cap, through mark-to-market has its own issues.
That's what some of the proposals to tax "unrealized" capital gains try to do, but I don't see how it wouldn't be a huge mess.
I had an economics professor who rather eloquently made the case that we should just make it a legal and fiduciary responsibility of corporations to return money to shareholders - either as dividends or buybacks. They get taxed when the profits are realized, and they can always re-invest their (taxed) earnings right back into the company if they want to.
