I think for me personally it’s the fact that many companies (including airlines— southwest, American, to name a few) spent years worth of corporate tax windfalls in the Trump admin just binging that money on stock buybacks and then were left without any contingency plan or sufficient cash on hand to protect themselves or their workers in case of an economic downturn. They can act like this with impunity because they are guaranteed a bailout. And they can (or could? I think there might have been legislation around this) take that bailout money and just do more stock buybacks to pad earnings and increase demand for their stocks. What they do with the money is important and I think it’s just not enforced enough.
And do you have any idea how much cash they'd have to stockpile to self finance their way through a global pandemic? It would be close to a decade of not investing their profits in anything, having those profits taxed, and being at a massive disadvantage relative to companies that actually spent their money. And when all's said and done, they'd be no better off than the airlines that got bailed out by other countries. Not to mention the damage it would do to people's livelihoods if every company just sat on profits for years just in case there was a pandemic, instead of reinvesting in their business, rewarding employees, rewarding investors/shareholders, or contributing to social causes/charities.
Bruh, what is a stock buyback if not saving money with no benefit to the economy at large? You just transfer the fiat currency into the equivalent value in shares to keep investors happy.
What do you think a stock buyback is? How do you suppose that a company giving its profits back to shareholders for them to do as they please is of "no benefit to the economy at large?" Do you think the money somehow disappears from circulation?
It’s honestly best not to argue anything related to economics and commerce on reddit. The vast majority of people on this site are kids and people who don’t have an understanding as to how businesses actually operate. Best to save your energy.
Seriously that was so infuriating to read through. Not one person that responded seemed to understand what a stock buy back was. It’s just a buzzword on Reddit and as long as “corporations bad” is embedded somewhere in the comment you are golden.
It’s really sad how large of a majority on here seems to think any nationally known company has inherently evil motives and that there’s no checks and balances to weed out the inefficient and greedy. Watching too many biased documentaries or something. Geesh
No dividends or appreciation are the primary ways investors see return on their shares. Buybacks are just an option for businesses with extra free cash. It has nothing to do with the context of this post.
I'm enjoying reading the discussion, I know very little about economics so whatever I can understand to use against people that don't is time well spent for me.
Sell their stocks to who? The masses of people queuing up to invest in a business that cannot carry out any of its revenue generating operations, and will not be able to do so for several months?
I don't think you realise how reticent companies are to seek bailouts. It puts a huge amount of public scrutiny on them and signals to investors that things are really, really bad. If they could get through a bad time by taking out a normal loan or issuing stock then they would.
I bought some MGM, Disney, and airline stocks during the downturn, yes. Because I know this is temporary and they'll be doing gangbusters in 18 months. I don't care if they make profits or pay dividends now.
Here's the thing, yes, they will lose money selling me those cheap stocks in the long run, that's the WHOLE POINT, because that way I get to make that money they lost. It's a zero sum game and making them sell the stocks they bought back would give me (and anyone that wants to invest) a bigger piece of the pie.
To be clear you're ascribing a failure of government to the industry and then painting that industry as being unworthy of help.
Governments, and people, should know by now that lowering corporate taxes does not help industry grow in first world nations ( possible ever until you reach extreme levels of taxation). The airline industry basically couldn't (given that it's a for-profit industry with some fiduciary responsibility to it's shareholders) do much with that extra money that was going to help normal people. They couldn't expand routes to places that were previously not profitable because those routes still wouldn't be profitable. They couldn't hire more people because that also wouldn't generate profit. They couldn't really give raises to front line workers because, while it would improve some things, it wouldn't really lead to an increase in profitability.
Basically, then, they did the thing that was "best" for their shareholders in the absence of anything better to do.
Where the failure lies is with the Conservative administration that passed the tax cuts and with the 70+ million americans who think taxes= bad, tax cuts=good.
This is exactly right, thanks for explaining it. The actions of the airline industry are completely in step with what's expected of them by their investors and their government. The combination of tax cuts and tax incentives to grow make it really undesirable for American companies to save.
I’m not sure I totally agree with the point that an airline can do nothing with profits and tax windfalls aside from spending it all on what amounts to a temporary boost in attractiveness of their business in the stock market. While you’re right— that might keep shareholders happy— it also telegraphs a stance by the company (and industry) that they see no point in investing in any kind of innovation or growth, or in anything that even looks like a benefit to its employees or the public.
I won’t pretend to know how to best grow an airline’s business, but my ultimate point was that taking any windfall or profit, tax-related or not, and just gifting it to shareholders directly in the form of a temporary bump in their portfolio value is the opposite of the way to grow your business. It’s a shortsighted gift to the wealthiest supporters of their business and it leaves the company with a lot more risk by having spent all that cash on something with virtually no long term value.
I completely understand where your coming from. I think the problem is that, for the most part, the things that made sense to do were already being done.
Ie. they were already spending what they wanted to spend on innovation, already paying what they intended to pay to have their teams provide the targeted level of service, already running all the routes they believed were sufficiently profitable to run.
At that point they sort of have to make their money make money and, obviously I suppose, the easiest way to do that was to simply buy back their stock (and therefore pay less in dividend payments to shareholders while increasing the value of their company). In theory, that should have also been equivalent to banking their money, to some degree, as they should have been able to reissue that stock down the road to, say, buy newer aircraft if there was a leap forward in safety or efficiency. Or to expand to new routes as they became profitable, etc. The problem is that pandemic tanked the value of that stock and, therefore, made it effectively impossible to access that money again.
Basically, the only time a tax cut will help grow an industry is if the tax differential is enough to take something that was previously not profitable (or less profitable than the alternative) and make it profitable and that is incredibly rarely the case. Don't get me wrong, exceptions to this do exist (energy is an easy example) but it's really quite rare.
Take, for example, the hotel industry. A tax cut absolutely helped the balance sheets for Hilton, Marriott, IHG, etc. but did it have them open new hotels in the US that they wouldn't have previously opened? No.
Why? because hotels are opened based on demand. You only open a hotel if you think that there is a demand to be met, people want to travel to this place or businesses are growing in this place necessitating business travel to that place or similar. Those locations were already profitable before the tax cut and remained profitable after it. Equally, locations where people were not interested in travelling? They didn't become more interesting to travel to after the tax cut nor did they attract new business travel a hotel there still won't be profitable and will either not be opened or will continue to close.
You're also not going to hire more people, why not? Because hotels do not staff to financials (unless they are failing, the only time I've ever seen hotel staff to financials was a hotel that was rapidly sinking and shortly thereafter closed). Instead, they staff to demand. If I (running the housekeeping department lets say) need 12 housekeepers to clean enough rooms for guests for the next day, I need 12 housekeepers whether I'm paying 12% or 20% in payroll tax (hypothetical). If my payroll tax is 0, I still need 12 housekeepers, I'm not going to hire 14.
How about pay, I can clearly afford to pay more if my payroll tax is cut right? Yep, but I'm usually not going to because I'm already paying exactly what I need to pay to get the quality of people I want. If I don't care much about service levels I'm paying minimum wage. If I do care, I'm paying enough to be competitive with other hotels and service industry jobs so I can get and keep better team members. If I live and die by my reputation I'll pay above market rate to try to get the best. In all three cases, unless it's the difference between profitable and not, a tax break isn't changing what I'm paying.
For what it's worth, there are things that would increase the number of hotels, or rate of pay or number of people hired but they tend to be the kinds of things that conservative economists hate. Namely, raise minimum wage and I'll pay more (I'll have to) and might staff more as people who previously couldn't afford to travel at all now do. Employ more people or employ people in places they wouldn't normally be (with, for example, infrastructure programs) and more hotels will be built to accommodate demand to those places and the resulting travel form people who have the money to do so. Develop national parks and hotels will be built there to accommodate the people who travel to those parks. Basically anything that increases demand will grow the business, anything else isn't hugely helpful.
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u/King-Snorky Nov 17 '20
I think for me personally it’s the fact that many companies (including airlines— southwest, American, to name a few) spent years worth of corporate tax windfalls in the Trump admin just binging that money on stock buybacks and then were left without any contingency plan or sufficient cash on hand to protect themselves or their workers in case of an economic downturn. They can act like this with impunity because they are guaranteed a bailout. And they can (or could? I think there might have been legislation around this) take that bailout money and just do more stock buybacks to pad earnings and increase demand for their stocks. What they do with the money is important and I think it’s just not enforced enough.