Daily Archives: 5 March 2018

Buybacks and Tax Cuts

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Who benefits most and what was the value of the Trump administration’s tax cuts, if all that companies are going to do with their tax cut related income boost is use it to buy back shares?  This seems actually confusing to some folks on the Left.

Here are some of the happy totals.  Share buybacks have run to some $200 billion in the last three months.  Moreover,

Of the companies in the S&P 500, about 44% have said they plan to reinvest some portion of their tax gains into capital expenditures or wages, while 28% said they would use them to increase shareholder returns, Morgan Stanley found in an analysis of earnings transcripts. Its own analysts expect companies to spend about 43% of their savings on buybacks and dividends, and 30% on capital expenditures and labor.

Progressive-Democrats are making the argument that the buybacks benefit only the 1%.  Certainly, stockholders—those owners of the company—who choose to accept a buyback deal are better off: they get something of value to them that they didn’t have before, which is more cash in their pocket.

Progressive-Democrats actually think the money stops there.  Or so they imply.

It doesn’t.  The money doesn’t disappear under a rich man’s mattress; he didn’t get rich doing that.  No, the tax reduction money that goes to capital expenditures improves production efficiency, which lowers costs to the consumer, which raises demand for the product, which increases pressure to hire more workers to make more product.

Money spent on buybacks and dividends (another bugaboo of the Left—how dare a company return any of its money to its owners) is money received by the company’s owners, who include not only the stinking rich but ordinary folks like you and me, either as investors ourselves or as beneficiaries of company pension plans or as holders of 401(k)s and IRAs.  That money received by us, including the Evil Rich among us, then gets spent.  That’s increased consumer demand, which increases pressure to hire more workers.  Even the buyback and dividend money that goes into those retirement accounts gets spent—we’re all going to retire someday, and if we die, our heirs will spend the money.

It stretches credulity to believe that folks as undeniably brilliant as Progressive-Democrats hold themselves out to be don’t understand this.

But, hey—votes.

Tariffs and National Security

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In response to President Donald Trump’s of tariffs to be applied to imports of steel and aluminum at some unspecified in the (presumably relatively near) future and coming from as yet unnamed nations, Japanese Trade Minister Hiroshige Seko said

I believe there is absolutely no impact on America’s national security from imports of steel and aluminum from Japan, which is an allied nation.

I agree in principle with the generally negative attitude toward tariffs.

However, Seko has misunderstood the national security question. Stipulate that Japan (and the Republic of Korea, another staunch ally and key exporter of steel to us) is a strong and reliable ally.

  • Both rely on imports of raw materials in order to produce steel or aluminum
  • The supply lines from raw material sources to Japan and the RoK are long, vulnerable, and easily cut off by hostile action of the PRC and/or Russia
  • The supply lines from Japan and the RoK to us are long, vulnerable, and easily cut off by hostile action of the People’s Republic of China and/or Russia

Indeed, the RoK and our imports from them are even more vulnerable, with the PRC and Russia just a short hop away and the PRC’s client, northern Korea, just across a minefield.

Supply lines from other sources of our steel and aluminum imports—Canada, for instance—are much more secure.  While tariffs against nations like the PRC might be justifiable, I hope the tariffs will be suitably and tightly targeted and truly based on the illegality of dumping.

The national security question can be addressed through other means, by for instance mandating a certain amount of domestically produced steel and aluminum.  The difficult discrimination here is that the mandate must not be to “protect” American producers; they need to compete better.  The mandate must be for the demonstrable purpose of maintaining an American capability both to produce steel and aluminum and to ramp up that production capability when those supply lines get cut off.

What OPEC did to our oil supply, and so to our economy and national security, the PRC and Russia can just as easily do through our access to those metals.  And keep in mind the PRC already has attempted that with rare earth metals, which are critical to our digital capability.  One purpose of the PRC’s occupation of the South China Sea is to seize control of all those rare earth sources on the sea bottom.