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A wealth tax would also be beneficial in reducing wasteful stock buybacks. Without any benefits from high stock prices, boards and shareholders will be less inc

A wealth tax would also be beneficial in reducing wasteful stock buybacks. Without any benefits from high stock prices, boards and shareholders will be less inclined to impose those price targets on CEOs, CEOs will be less incentivised to "cheat" on quarter-based performance and the myopic share price performance view of their companies, hence will reduce stock buybacks and returning money to shareholders. That leaves very few options - either reinvest into the company or pay out dividends, and the latter is unfavorable for shareholders compared to the former.

bobthepanda 15d ago
i did recently see something interesting where if you look at buybacks from the Mag7, they basically almost entirely offset vesting employee RSUs. which kind of makes sense, those RSUs have to come from somewhere or they dilute the current shares. i don't know that people on this website in particular would like the "solution" to that.
- fakedang 15d ago
  Fair point, and explains why I was downvoted. My focus was on mostly the usual slew of companies that don't reward their employees in stock options, but handsomely reward their CEOs - O&G, pharma and biotech, advanced manufacturing, etc.
jaredklewis 15d ago
Why do you think a wealth tax would reduce stock buybacks? I don't see the relation.
- fakedang 15d ago
  Currently equity appreciation is desirable for HNWIs because wealth isn't taxed, only income realized is. The more their wealth appreciates, the more viable it becomes as collateral they can borrow against, raising their borrowing capacity. CEOs, the board and the major shareholders fall under this group too. Stock buybacks artificially inflate equity value - cash rich companies buyback their stock just to deploy that cash and prop up their equity value. CEOs love this easy trick because it increases their equity holdings' value, and also lets them hit quarterly share price targets which allows them to accrue more equity options. But at the end of the day, this money isn't benefiting the company, so it's just air. With a wealth tax, the incentive to acquire increasing wealth dampens somewhat. You're only taxed once you cross a certain threshold usually, but once you cross it, the resulting tax hit can be quite sudden and severe. You hold equity but you have to hand over a significant amount of cash immediately, so you'd have to liquidate your holding, which is why a lot of HNWIs hate it. In fact, it's why there are active strategies (usually involving philanthropy and blind trusts) in Switzerland (which has a global wealth tax) that allow to optimize your wealth just so you stay below the threshold. But at least, that wealth isn't being hoarded and is being actively deployed in other ways.
  - ang_cire 15d ago
    Hacker News Wannabe Investors?
    - RugnirViking 15d ago
      high net worth individuals - rich people
    - edoceo 15d ago
      Some here are qualified to do angel investing by income (FAANG salary) or wealth so could take Wannabe term out, if they pulled the trigger. It's a way to get into the next innovation economy. Moderate-to-high risk, diversification is critical.
  - deleted 15d ago
    [deleted]
  - jaredklewis 14d ago
    I think what you've outline here is entirely theoretical, unless you have some empirical evidence you have thus far not linked, and (IMHO) likely not correct. I also don't think there would be any particularly progressive or otherwise good effects from reducing stock buybacks, but assuming we did think that, we can skip all of the wealth tax second/third order effect theorizing and just use a direct corporate buyback tax, which we did do in the IRA. Stock buybacks have already fallen, but if its effects are not big enough for you, then raise it or reduce exemptions. Not that I think that anything particularly good would come of that.
cpburns2009 14d ago
How are stock buybacks wasteful? Aren't they just an alternate, more tax effective divided?

bobthepanda 15d ago

i did recently see something interesting where if you look at buybacks from the Mag7, they basically almost entirely offset vesting employee RSUs. which kind of makes sense, those RSUs have to come from somewhere or they dilute the current shares. i don't know that people on this website in particular would like the "solution" to that.

fakedang 15d ago
Fair point, and explains why I was downvoted. My focus was on mostly the usual slew of companies that don't reward their employees in stock options, but handsomely reward their CEOs - O&G, pharma and biotech, advanced manufacturing, etc.

jaredklewis 15d ago

Why do you think a wealth tax would reduce stock buybacks? I don't see the relation.

fakedang 15d ago
Currently equity appreciation is desirable for HNWIs because wealth isn't taxed, only income realized is. The more their wealth appreciates, the more viable it becomes as collateral they can borrow against, raising their borrowing capacity. CEOs, the board and the major shareholders fall under this group too. Stock buybacks artificially inflate equity value - cash rich companies buyback their stock just to deploy that cash and prop up their equity value. CEOs love this easy trick because it increases their equity holdings' value, and also lets them hit quarterly share price targets which allows them to accrue more equity options. But at the end of the day, this money isn't benefiting the company, so it's just air. With a wealth tax, the incentive to acquire increasing wealth dampens somewhat. You're only taxed once you cross a certain threshold usually, but once you cross it, the resulting tax hit can be quite sudden and severe. You hold equity but you have to hand over a significant amount of cash immediately, so you'd have to liquidate your holding, which is why a lot of HNWIs hate it. In fact, it's why there are active strategies (usually involving philanthropy and blind trusts) in Switzerland (which has a global wealth tax) that allow to optimize your wealth just so you stay below the threshold. But at least, that wealth isn't being hoarded and is being actively deployed in other ways.
- ang_cire 15d ago
  Hacker News Wannabe Investors?
  - RugnirViking 15d ago
    high net worth individuals - rich people
  - edoceo 15d ago
    Some here are qualified to do angel investing by income (FAANG salary) or wealth so could take Wannabe term out, if they pulled the trigger. It's a way to get into the next innovation economy. Moderate-to-high risk, diversification is critical.
- deleted 15d ago
  [deleted]
- jaredklewis 14d ago
  I think what you've outline here is entirely theoretical, unless you have some empirical evidence you have thus far not linked, and (IMHO) likely not correct. I also don't think there would be any particularly progressive or otherwise good effects from reducing stock buybacks, but assuming we did think that, we can skip all of the wealth tax second/third order effect theorizing and just use a direct corporate buyback tax, which we did do in the IRA. Stock buybacks have already fallen, but if its effects are not big enough for you, then raise it or reduce exemptions. Not that I think that anything particularly good would come of that.

cpburns2009 14d ago

How are stock buybacks wasteful? Aren't they just an alternate, more tax effective divided?