Sen. Tammy Baldwin is the latest lawmaker to take aim at corporate buybacks.
The Democratic senator from Wisconsin — and frequent critic of share repurchases— is introducing a bill to ban open-market stock buybacks.
On Tuesday, Baldwin also released a report that examines the impact of stock buybacks on workers, companies and the economy. Baldwin and other Democratic senators will hold a hearing examining buybacks on Tuesday afternoon.
The report, put together by Baldwin’s staff, argues stock buybacks suppress wages and drive income inequality, while increasing systemic risk to the economy.
“The evidence also shows that Wall Street insiders and corporate executives have abused the American system of corporate governance, spending trillions on buybacks to benefit themselves at the expense of employees and other corporate stakeholders,” the report said.
Buybacks under fire
Stock buybacks are a common practice by publicly traded companies: companies buying back its own stock decreases the amount of outstanding shares in the market. Fewer shares on the market means the remaining ones are worth more; it’s also often used as an alternative to dividends.
Share repurchases have come under fire on Capitol Hill recently, as Democratic lawmakers argue the 2017 Republican tax law is fueling buybacks instead of encouraging investment in workers.
This week, S&P Dow Jones Indices announced that S&P 500 companies spent a record $223 billion in the quarter on buybacks, marking the fourth consecutive quarterly all-time high. That’s the longest streak in the 20 years SPDJI has been tracking buybacks.
“Companies continued to spend more of their tax savings on these share repurchases as they boosted earnings through significantly reduced share counts. Adding to the share reduction, and therefore the EPS impact, was Q4’s stock price decline, which permitted companies to buy even more shares for their dollars and reduce share count more efficiently,“ said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices.
Baldwin’s report argues “the buyback binge” has led companies to take on “risky” debt in order to buy back stock.
“This dynamic has pushed corporate debt to record highs. The share-sellers reap short-term gains, yet they bear none of the risks of the other stakeholders, who are left to face the prospect of a default. Long-term retirement savers suffer the permanent loss of their investment if the company goes bankrupt. Workers face the loss of their job and pension cuts, possibly resulting in a delayed retirement. Taxpayers deal with further strain on public resources when they are used to assist workers who lose their jobs,” the report said.