In a year expected to bring a record amount in company stock buybacks, Silicon Valley tech giants are leading the way.
Cisco’s $20 billion stock buyback was the highest among Silicon Valley tech giants and all other U.S. companies that had announced they’re buying back their own stock in 2018.
But on May 1, Apple outdid them all, announcing a $100 billion buyback.
“Recent corporate tax reform allows us to deploy our cash more efficiently,” Apple CEO Tim Cook said during the company’s second-quarter earnings call last week. The tech giant also raised its dividends to shareholders by 16 percent.
The Republican tax cuts, signed by President Donald Trump in December and touted by the administration as a way to boost investment and jobs in the United States, slashed the corporate tax rate from 35 percent to 21 percent. The cost of repatriating overseas profit fell from 35 percent to 15.5 percent.
As of March, JPMorgan analysts had counted $151 billion in buybacks and predicted the total would reach a record $800 billion by the end of 2018. Of that number, they estimated that $200 billion would come because of the reduced repatriation tax rate.
Some of Silicon Valley’s biggest companies now account for a bulk of that $200 billion estimate. Besides Apple’s $100 billion and Cisco’s $20 billion, the other notable buybacks announced so far among tech giants include: Oracle with $12 billion, Google parent Alphabet with $8.6 billion, eBay and Applied Materials with $6 billion each, and Juniper Networks with $2 billion.
So the Tax Cuts and Jobs Act has delivered tax cuts — and a windfall for companies and investors. Will it deliver jobs?
“In theory, it’s supposed to help create jobs, but it depends on how the economy is doing,” said Stoyu Ivanov, professor in the department of accounting and finance at San Jose State University, last week. “Unemployment is low, but then there’s the trade war with China.”
When there was a tax repatriation holiday under President George W. Bush in 2004, hundreds of companies that took advantage of the tax cut also gave money back to shareholders by buying back their stock. But the companies didn’t create jobs, they cut them, according to a report by the Congressional Research Service, Congress’ nonpartisan think tank.
“I find that hard to believe. Job cuts would’ve happened anyway,” said Michael Boskin, economics professor at Stanford University and senior fellow at the Hoover Institution, a leading conservative think tank, last week. One of the Silicon Valley examples was Hewlett-Packard, which from 2005 to 2006 cut 14,500 jobs, according to the report.
“HP was in long-term decline,” Boskin said. “You could just as well say they would’ve had to cut more jobs if they hadn’t brought money back.”
As for how we might see whether stock buybacks help boost the economy, “the money doesn’t evaporate because it leaves Apple,” said Alan Auerbach, economics professor at UC Berkeley, last week. “Investors are going to put that somewhere.”
But who are these investors? Ivanov pointed out that middle-class workers have 401(k) plans that invest in companies such as Apple and others.
However, a Gallup poll showed that only about 52 percent of U.S. adults owned stock in 2016. And a 2014 study by New York University economist Edward Wolff found that as of 2013, the wealthiest U.S. households — the top 1 percent — owned 38 percent of all stocks.
The question of who benefits from stock buybacks bothers lawmakers such as Sen. Tammy Baldwin, D-Wisconsin, who in March introduced a bill that seeks to improve disclosure of stock repurchases and prohibit companies from buying back their stock on the open market.
“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,” Baldwin said in a statement in March. In her news release, she named two companies that last year bought back shares and this year cut jobs in her state: Kimberly-Clark and Walmart.
Her bill, the Reward Work Act, is supported by the AFL-CIO, the largest alliance of unions in the nation.
