The effects of a company buying back its stocks

"0.99 Coefficient of Determination" wrote in news: snipped-for-privacy@i40g2000cwc.googlegroups.com:

No, they are normally done on the open market. There can be Dutch auctions and such when a big chunk of the company's shares are wanted.

Buybacks reduce equity (it's throwing cash out the window), so ROE increases.

Yes, assuming the shares are not redistributed as stock options to employees or such. Also assumes no interest cost or forfeiture as a result of the buyback (which is unrealistic).

In theory, yes. In practice the owners of the last portions of shares would demand higher prices for their now incredibly valuable shares. Again, this ignores interest expenses, which could wipe out most or all earnings.

One negative about companies buying back their stock is the implication that management has no better use for its money... no new R&D, no new product lines, no plans on expansion and no increase in dividends.

management has no better use for its money... no new R&D, no new product lines, no plans on expansion and no increase in dividends.

but it does show the company is optimistic about its own stock, doesn't it?

so in that sense it is a good sign.

the sarp

Not to mention management stock options benefit from the increased EPS, assuming the same earnings / shares outstanding.

The major excuse for this was the double taxati>One negative about companies buying back their stock is the implication that

management has no better use for its money... no new R&D, no new product lines, no plans on expansion and no increase in dividends.

By any chance, are you taking stupidity lessons from Comics?

Double taxation of corporations goes back to the foundation of American republic First, corporations are not Federal issues. Corporations, with a few exceptions like the Red Cross, Boy and Girl Scouts and the MITRE Corporation, are creations of each of the fifty states. Each state constitution has a chapter on the rights of corporations. Corporations exist for limited liability. Corporations are artificial people. In other words if a corporation commits a tort or an action for which it can be sued, only the corporation is liable, not the stockholders.

In exchange for this "limited liability," which is not afforded to individual proprietorships or partnerships, the corporation is taxed on all the money it earns, whether or not it pays dividends to its stockholders.

The principal beneficiary of the tax reduction on dividends are the large stockholders. People like us collect perhaps $400 to $1000 per year in dividends and would see about $30 in benefits. Bill Gates, the wealthiest man on earth, receives millions in benefits. But Gates has donated $58,000 to Republicans thus far. It's proven to be the best $58K he ever spent.

And since nobody gets something for nothing, it is us, the middle class which has to pay for Bill's multi million dollar tax break. We pay for it through the Alternative Minimum Tax which the Republicans refuse to give up because it impacts the middle class , not the multi billionaires.

You forgot to mention your other tax and buy votes tricks like taxing individuals invented by who?

Ronnie kicked your asses. Twice. Why?

Never mind, not interesting in such OT dribble.

arthur =

thanks for sharing that, arthur.

the sarp

has to pay for Bill's multi million dollar tax break. We pay for it through the Alternative Minimum Tax which the Republicans refuse to give up because it impacts the middle class , not the multi billionaires.

Yes. A nation is the biggest cash cow ever invented, although African dictators seem to be doing better at milking than American politicians relatively speaking.

The federalist constitution (our second, in 1789) was sponsored by bankers and other wealthy interests from their estates along the Hudson river, prevent threats such as Shea's Rebellion.

the sarp

The United States Revenue Act of 1913 imposed the first federal income tax following the ratification of the Sixteenth Amendment and lowered basic tariff rates. It was signed into law by President Woodrow Wilson on October 3, 1913.

Less than 1 % of the population paid federal income tax at the time.

The States have nothing to do with ratifying changes to the US Constitution.

ex arthur sick of the cheats, pump and dump artists, garbage penny stock hustlers, Liberals, Socialists, and their Communist allies, terrorist lovers, and sundry low life festering in this cesspool of anti knowledge.

Sixteenth Amendment to the United States Constitution

Amendment XVI (the Sixteenth Amendment) of the United States Constitution, authorizing income taxes in their present form, was ratified on February 3, 1913. The amendment states:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

History

The Wilson-Gorman Tariff Act of 1894 attempted to impose a federal tax of 2% on incomes over $3,000. Derided by its opponents as "communistic", it was challenged in federal court.

......................................................................................................... In the case of Pollock v. Farmers' Loan & Trust Co. 157 U.S. 429 (1895), aff'd on reh'g, 158 U.S. 601 (1895), the Supreme Court declared the 1894 Act to be an unconstitutional unapportioned "direct tax" (because it taxed the rents from land and the dividends from stocks, and the Court said that such taxes "burden" the property).

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In response to this development and a growing concern among many elements of society that the wealthiest Americans had consolidated too much economic power, this amendment was passed by Congress and sent to the states. In 1913, Secretary of State Philander Knox proclaimed that the amendment had been ratified by the necessary three-quarters of the states in 1913 (a few additional states ratified the amendment later), ensuring the constitutionality of unapportioned federal income taxes.

Interpretation

The Supreme Court's interpretation of the Sixteenth Amendment has evolved and adapted considerably over time. Many disputes about the applicability of the amendment to specific types of income spring from reliance on the language of out-dated interpretations and overturned decisions.

Early decisions

In Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916), the Supreme Court indicated that the Sixteenth Amendment did not give the Congress a new power to tax incomes, as Congress already had that power. Although an income tax on income from property had been deemed (under Pollock, above) to be a direct tax, and an income tax on wages, etc., had been deemed to be an indirect tax (an excise), the Court in Brushaber decided that, after the Sixteenth Amendment, the Constitution allows Congress to tax any incomes without apportionment (and without regard to any census or enumeration) regardless of "source" -- that is, regardless of whether the particular income tax is deemed direct (such as a tax on income from property) or indirect (i.e., an excise, such as a tax on income from labor). The Sixteenth Amendment made the distinction between a direct tax and an indirect tax constitutionally irrelevant with respect to income taxes. In Brushaber, the Court upheld the validity of the Federal income tax.

In the Supreme Court case of Bowers, Collector v. Kerbaugh-Empire Co.,

It was not the purpose or the effect of that amendment to bring any new subject within the taxing power. Congress already had the power to tax all incomes. But taxes on incomes from some sources had been held to be "direct taxes" within the meaning of the constitutional requirement as to apportionment. [cites omitted] The Amendment relieved from that requirement and obliterated the distinction in that respect between taxes on income that are direct taxes and those that are not, and so put on the same basis all incomes "from whatever source derived". [cites omitted] "Income" has been taken to mean the same thing as used in the Corporation Excise Tax of

Modern interpretation

In Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), the Supreme Court laid out what has become the modern understanding of what constitutes 'income' to which the Sixteenth Amendment applies, declaring that income taxes could be levied on "accessions to wealth, clearly realized, and over which the taxpayers have complete dominion." Under this definition, any increase in wealth?whether through wages, benefits, bonuses, sale of stock or other property at a profit, bets won, lucky finds, awards of punitive damages in a lawsuit, qui tam actions?are all within the definition of income, unless Congress makes a specific exemption (as it has for things like gifts, bequests, and certain scholarships).

Controversy

A common claim among tax protesters, conspiracy theory proponents, and others opposed to income taxes in general is that the Sixteenth Amendment was never "properly ratified". Claims calling into question the ratification of the Sixteenth Amendment cite factors such as:

• differences Thirty-eight states ratified the sixteenth amendment, and thirty-seven sent formal instruments of ratification to the Secretary of State. (Minnesota notified the Secretary orally, and additional states ratified later; we consider only those Secretary Knox considered.) Only four instruments repeat the language of the sixteenth amendment exactly as Congress approved it. The others contain errors of diction, capitalization, punctuation, and spelling. The text Congress transmitted to the states was: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." Many of the instruments neglected to capitalize "States," and some capitalized other words instead. The instrument from Illinois had "remuneration" in place of "enumeration"; the instrument from Missouri substituted "levy" for "lay"; the instrument from Washington had "income" not "incomes"; others made similar blunders.

Thomas insists that because the states did not approve exactly the same text, the amendment did not go into effect. Secretary Knox considered this argument. The Solicitor of the Department of State drew up a list of the errors in the instruments and?taking into account both the triviality of the deviations and the treatment of earlier amendments that had experienced more substantial problems?advised the Secretary that he was authorized to declare the amendment adopted. The Secretary did so. . . . Secretary Knox declared that enough states had ratified the sixteenth amendment. The Secretary's decision is not transparently defective. We need not decide when, if ever, such a decision may be reviewed in order to know that Secretary Knox's decision is now beyond review.

Federal courts have rejected appeals based on claims of non-ratification, and some now consider them frivolous suits that are subject to sanction. In Knoblauch v. Commissioner, 749 F.2d 200, 201 (5th Cir. 1984), the court held, "Every court that has considered this argument has rejected it." when that court was presented with an argument that there were defects in the ratification of the Sixteenth Amendment by the states.

Legal effect of Sixteenth Amendment ratification argument in tax evasion cases

Under the United States Supreme Court ruling in Cheek v. United States, 498 U.S. 192 (1991), a defendant in a tax evasion prosecution who has argued that the Sixteenth Amendment was not properly ratified may have the argument turned against him (or her). Such arguments, even if based on honestly held beliefs, may constitute evidence that helps the prosecutor prove willfulness, one of the elements of tax evasion. See Tax avoidance and tax evasion.

Natural right argument

A str>

even though direct taxing of individuals was unconstitutional at the time. The Republicans under President Taft rectified that by ratifying the 16th Amendment in February, 1913.

multi million dollar stock dividend loophole?

If you don't want double-taxed dividends, then quitcherbitching and buy into a partnership and accept the unlimited liability and illiquidity that implies. Shares of a corporation are limited liability and highly liquid for the same reason that they're double-taxed-- you are not the corporation, it is a separate legal entity. It's the price you pay for ease and safety.

Couldn't help noticing, though, that the corporation is taxed on revenues minus expenses, while I'm taxed on everything that comes in, no matter what my living expenses are.

hi lubow..

although i am very new to the market .what i can say is that when a comoany buys its own shares back it can do it for

1. bonuses

1. it can't find any other way to utilise their money . but then all depends uopn the past too. if the company is a good one and constantly making profits & giving dividends then we can elimate

also if we can sense that the markets are rising or a boom is along the way then we can think of the 2nd option.

most of the time its either 1st or the second option that always happens.