Source: United States Senator for Ohio Sherrod Brown
Download Production Quality Footage of Sen. Brown’s Speech HERE
WASHINGTON, D.C. – In Case You Missed It: U.S. Senators Sherrod Brown called on the Senate last night to pass his Stock Buyback Accountability Act, new legislation to encourage companies to invest in the real economy instead of in Wall Street shareholder giveaways in the form of stock buybacks. Brown’s bill would assess a two percent excise tax on the amount spent by a publicly traded company on buying back its own stock, helping to reinvest in the economy, while also preventing abuse and reducing tax avoidance, both of which are significant risks from stock buybacks.
“We’ve known for years that stock buybacks are a problem – that they distort the market, they lead to less long-term economic growth, and they divert investment from workers,” said Brown on the Senate floor. “Now, we have a real chance to actually do something about it. After years of politicians talking about reining in Wall Street, now is our opportunity to do it – to show people we’re listening, and we’re taking action.”
For many years stock buybacks were considered illegal market-manipulation due to the risk they presented. Today, serious concerns remain about corporations using stock buybacks to inflate their stock prices, particularly when corporate insiders have significant amounts of stock-based compensation themselves.
After the 2017 Republican tax law, instead of higher job growth or a GDP surge, we saw corporations spending hundreds of billions of dollars buying back their own stock. The big winners were rich shareholders, CEOs, and foreign entities, not American workers.
Bill text is available here.
Brown’s remarks, as prepared for delivery, can be found below:
A week ago today, we celebrated Labor Day – a day to honor the labor movement that built this country and built our middle class, and to recognize all the Americans working hard every day to support their families and contribute to their communities and power our economy.
Over the summer, I’ve been all over Ohio, talking with those workers:
- Steelworkers in Toledo,
- Bus drivers in Canton,
- VA health care workers serving our veterans in Chillicothe,
- Union mechanics in Columbus.
They live in different communities, they come from different backgrounds. But work unites all of us.
We take pride in hard work in this country, and we believe that ALL work has dignity – whether you punch a clock or swipe a badge…
No matter who you are, where you live, or what kind of work you do.
But for far too many people, hard work isn’t paying off.
Productivity has gone up, stock prices have soared, executive compensation is stratospheric – but wages have barely budged.
This isn’t a coincidence – it’s not an accident of the market or an inevitable result of capitalism.
Wall Street has all the power in our economy, and they’re obsessed with accumulating more wealth for the people who already have it.
The system we have – where all the gains in the economy seem to go to those at the top – is by Wall Street’s explicit design, and it comes at the direct expense of American workers.
People don’t always make the connection – they’re rightfully angry, but they don’t think about how decisions in corporate boardrooms and on the floors of stock exchanges thousands of miles away affect their job opportunities and their wages.
Corporations focus on their short-term performance on the stock market – not the long-term success of the company and its workers.
Their main goal becomes increasing stock prices quarter-to-quarter. That’s how CEOs’ performances are evaluated, and they are compensated in large part with company shares.
Stocks can account for as much as half of an executive’s compensation package.
Corporations juice those stock prices by re-purchasing their own stock – what we call stock buybacks.
Here’s how it works:
Because there are a finite number of company shares at any given time, purchasing shares will decrease the number of shares available to investors and, therefore, drive up the value of the remaining shares.
Existing shareholders will see their stock value increase – and lo and behold, often those existing shareholders are the executives at the company
This is often an even more attractive option to executives than dividends, because buybacks are more flexible and under current law, they aren’t taxed until the shares are sold.
We want to change that.
The economy hasn’t always worked this way:
A few decades ago, a majority of Wall Street capital funded the real economy – wages, machinery, research, new construction.
Stock buy-backs used to be considered illegal market manipulation.
Today, they’re routine.
Now only about 15 percent of capital goes to the real economy, while the amount corporations spend on buybacks has exploded.
Between 2004 and 2013, Home Depot spent 99 percent of its net income on stock buybacks, and IBM spent 92 percent.
That’s right, some companies are spending as much as 100 percent of their profits or close to it on their own stocks, rather than workers’ wages.
And it’s only gotten worse since Washington Republicans’ 2017 tax giveaway to these corporations.
When Leader McConnell handed them a windfall, their executives turned around and plowed that money right back into stock buybacks…and into their own pockets.
In 2018, the largest U.S. companies spent a record $806 billion on stock buybacks, a 55 percent jump from the previous year.
They spent more on stock buybacks than on debt payments, on capital expenditures, on research and development, on dividends.
Now in 2021 – as millions of families are struggling to recover from the pandemic and get back on their feet – you might think things would change.
We’re hearing a lot of companies complain about supposed “labor shortages” – you might think that would cause companies to reassess, and cut back on juicing the stock buybacks so they could permanently raise pay, or increase retirement contributions, or offer better health care plans, or invest in new training programs to attract workers.
But no – this year corporate stock buyback are on track to approach, or even surpass, the 2018 record.
Proponents of stock buybacks argue that companies purchase their own shares only after considering other, value-creating investment options.
That’s ridiculous.
Talk to any family in Cleveland or Chillicothe, in Marietta or Mansfield – really anywhere outside of Wall Street or the richest enclaves.
Ask these families if they can think of a better investment for the trillions in wealth American workers have created.
But of course executives’ personal interests influence their decision-making. One study of more than 2,500 companies found that the greater the percentage stock options in executive compensation packages, the more likely a company was to make stock buybacks.
So how do we stop this never-ending cycle of corporate greed, and make sure that workers are sharing in the profits they create?
We start with the new bill Senator Wyden and I are introducing –the Stock Buyback Accountability Act.
The tax code is one of the best tools we have to influence businesses. So our idea is simple – if you want to buy back your own stock, you have to pay a tiny 2% tax on that money you make off it.
Two percent is tiny – it’s a hell of a lot less than the tax rate that workers pay on their wages.
But that little tax will make companies think a little harder about whether stock buybacks are really the best use of their trillions in profits. And hopefully it will make it a little more likely they’ll invest that money in something useful instead – something like:
- A new factory,
- Research into new products,
- Training and apprenticeship programs,
- Pay raises for the workers that are making all those profits possible.
That has to be the goal of any stock buyback plan – it’s not about punishing executives. It’s about those executives paying their fair share, just like their workers do.
And it’s about changing the incentives in our economy, so that more of our country’s wealth gets invested back in the people who create it.
We’ve known for years that stock buybacks are a problem – that they distort the market, they lead to less long-term economic growth, and they divert investment from workers.
Now, we have a real chance to actually do something about it. After years of politicians talking about reining in Wall Street, now is our opportunity to do it – to show people we’re listening, and we’re taking action.
Creating a fairer tax system is one of the simplest ways to change the Wall Street-and-corporations-first system that Americans are so tired of.
We can make this simple fix to finally – finally – crack down on stock buybacks.
We can get rid of the tax breaks for corporations that ship American jobs overseas.
We can make multinational corporations pay their fair share, instead of always forcing families to foot the bill.
We can crack down on wealthy tax cheats that game the system.
And we can give working families the largest tax cut, ever.
It comes back to the Dignity of Work.
Wall Street doesn’t recognize that all work has dignity. They consider shareholders’ equity in a company to be all that matters.
But workers have equity in a company, too – it’s called sweat equity, and it’s time they were rewarded for it.
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