 Let's jump in on the stocks on stock buybacks. So here's the story. The Inflation Reduction Act was negotiated by Schumer and Manchin. And this is the Build Back Better. You remember Build Back Better that Biden proposed it was going to be a $4 trillion proposal. Then it was going to be a $2 trillion proposal. And Manchin basically said, nah, I'm not going forward. I'm not accepting it. Nothing of it. And then he went into, I don't know, some bar or some coffee shop or some basement with Schumer. And things happened over there. Who knows what happened. But Manchin was convinced to support a revised Build Back Better to call it an Inflation Reduction Act. We'll talk about whether it reduces inflation later on. And to sign on to it. And part of this act involves raising certain taxes. And we'll talk about those taxes when we talk about the bill itself. I want to focus now on one particular tax. Originally what Manchin had proposed was that as part of this, they get rid of the carried interest, basically the carried interest for private equity. And I think it was just for private equity. And I think it was just for private equity. Carried interest is private equity and hedge funds. Typically at the end of the year, you calculate how much profit the fund made. And 20% of the profit is part of your compensation as a manager of a hedge fund or a private equity fund. Sometimes it's 10%, sometimes it's 15%. 20% is relatively in the high end. Some funds that I know have charged 40% of the profit. But anyway, this percentage of the profit has always historically been taxed as a capital gains, as a long term capital gains. And therefore at a lower rate than regular income. And basically it's viewed as capital gains because it's a result of the gain in value of the enterprises that the business invested in. And it's a percentage of the total gain, 20% of the total gain. So there's a logic to why it's capital gains. It is capital, after all, and not regular income. And therefore it's taxed as a capital gain. Well, Democrats have hated this for a very long time. Some of the publicans as well. I think there was already a shrinking of or limitation on how this is calculated for the purpose of calculating capital gains under the Trump tax bill from four years ago, from 2018. So this is not a popular way to tax private equity and hedge funds. Republicans and Democrats generally hate private equity and hedge funds. So this is one they always go after. And Manchin and Schumer included this as a way to raise revenue because one of the things Manchin insisted is, if you're going to spend money on quote, climate change, then I insist you raise some money as well. This is not just deficit spending. That was the idea. So they had originally in this bill, they had this idea of changing the, and I know this is pretty technical, but it's important that they had this idea that they get rid of the carter interest and tax it as regular income. And they were going to raise, I don't know, $80 billion or $100 billion from this closing, from this difference. But then the only person I know out there, well, except for me and a bunch of economists, the only politician I know who actually likes the carried interest tax rate, the only politician I know is Sinema, the Democratic senator from Arizona. Sinema loves the carried interest lower tax rate. Now, why does she love it? God knows. But I think primarily because she gets a lot of money from private equity firms. Private equity firms contribute huge amounts of money to a PAC that supports her. And she is kind of known as the carried interest private equity senator, just like Bob Dole was the ethanol senator. Sinema is the carried interest senator. Try saying that fast. Carried interest cinema senator. Senator Sinema. Sinema is senator Sinema. Carried interest senator Sinema. Say that fast 20 times. Anyway, Democrats don't know to get this bill passed. They need every single Democratic senator to vote for it, every single one of them. They can't lose Sinema. So Sinema basically went into a bunker last week in Arizona somewhere and came out of the bunker at some point last week and said, no, we can't have this increase in taxes on carried interest. That stays, that's not going to change. Instead, how about we tax stock buybacks? So for one kind of little item on a tax bill that nobody gives a damn about to another little item on a tax bill that nobody cares about, but it's all about who's lobbying for whom. And nobody's lobbying against the tax on stock buybacks because nobody directly loses, nobody directly gains, there's no special interest group, there's no pressure group out there, specific pressure group that can go, yeah, we're going to fight stock buyback taxes. I mean, there probably is, but they haven't had time to organize yet. So instead of this, we're going to have a stock buyback tax in the Inflation Reduction Act that's going to raise about the equivalent of what they expected to raise with the carried interest. Don't know how high this tax is going to be. All the articles I read, I couldn't find how high it's going to be, when it's going to go into effect, who it's going to affect. But it is definitely a tax that's going to be raised and a new tax, completely new tax that doesn't exist today on stock buyback. So I thought, and that is a very long introduction, I thought this would be a good opportunity to talk about stock buybacks because the other thing I read the other day which was really interesting was that Apple has just issues a bunch of bonds. In other words, Apple has gone out there and borrowed five, I can't tell you how many $50 billion, some astronomical amount of money, they borrowed some astronomical amount of money in the capital markets from bondholders at a, I don't know, I think at five, six percent because Apple can raise money at very low rates because it's a very, quote, safe company. And they're using that money, among other things, to buy back their stock, which is interesting. Now why would you go into debt to buy back your stock? That seems strange, right? Seems strange. So what is Apple doing? And is Apple still going to do it when now the stock buyback is gonna be taxed by the Democrats? It's gonna be taxed by Congress. So what are stock buybacks? So think about a company like Apple or for that matter, any profitable company out there that has stock trading on exchange and stock trading on exchange and that stock is linked to, obviously the future profitability of the company. And if a company has a lot of cash because it's very profitable, it has a lot of cash on its books, what can it do with that cash? What can it do with that cash? Because shareholders don't like it when companies have a lot of cash on their books. Why don't shareholders like it when companies have a lot of cash in their books? Well, you don't get a lot of interest on the cash. Like the company's generating a profit of a turn on equity or a turn on asset, but the cash is just sitting there, it's not getting a return. It's getting, what are the checking accounts paid these days, some low interest rate, that's ridiculous. So it's not a very good use of the company's money, just sitting there as cash on the books. So shareholders want the company to do something with that cash. Now, what are the possibilities of what the company could do? Well, the company could invest the money, but what kind of investments are gonna make shareholders happy? What kind of investments are gonna make shareholders happy? Well, the kind of investments that generate a significant return. A return that is greater or equal to like what kind of the stock returns. So the investment that the company makes has to be what we call a net positive value, net present value, right? In present value terms, it has to be positive. Once we look at all the investment, money in, and all the money coming out, all the profits coming back, and we discount it to today, it has to be profitable. So that's one thing the company could do with the money. Oh, by the way, there's another reason why shareholders don't like companies to have a lot of stock on the books. One is it just sits there and it doesn't get a return. What's the second one? Anybody know what the second one is? curious if you know what the other reason is that shareholders don't want companies to sit on a lot of cash in their bank account because companies with a lot of cash in their bank accounts can get lazy and cocky and wasteful. There's no urgency to being efficient. There's no urgency to being profitable. There's no urgency to maximize shareholder wealth because they have a lot of cash. If they have a bad year, they can use some of the cash, no problem. Whereas if you don't have cash on the books, now if you have a bad year, you have to go to capital markets and ask for capital. You have to do something about it. Or maybe you have to trim expenses. You have to change the kind of maybe operations. You have to find ways to make the business profitable so that you can get, so that you can survive. Companies get big, lazy, sluggish, uncompetitive when they have a lot of cash on the books. And they don't suffer when they do badly quite as fast, quite as well. Okay, so that's two reasons. And one way in which to get rid of that cash, invest it in projects, in businesses. They can generate cash, sorry, generate profit for the business, for the underlying corporation, for the shareholders. Second thing you can do with the cash. You can give it to shareholders. You can give it to shareholders. It's theirs. It's money you don't need right now. Let's say you don't have any good investments. You can just give it to shareholders. Now, how do you give it to shareholders? Well, there are two ways of giving it to shareholders. One is you can give it to them through dividends. You can pay them a dividend. And most companies, most corporations pay dividends. You can increase the dividend. Or you can have a one-time dividend and give them the cash. The problem with the dividend is that dividends are taxed like regular income. So shareholders don't particularly want you to pay them a dividend because the tax rate is pretty high. Ah, but there's another way you can give it to shareholders. You can buy back their stock. You can buy back their stock. Now, if you buy back their stock, they pay and they make a profit because you bought the stock at a higher price. They make a profit, they pay capital gains on that stock. That capital gains is taxed at a lower rate. So stock buybacks are a way of companies to deliver the cash to shareholders and allow them to take on a lower tax rate. A lower tax rate. Now note that capital gains taxes and dividend taxes are from double taxation. Because remember that the corporation gets taxed and then it takes its after tax dollars and hands out the dividends of the stock buyback and then it's taxed again at the individual level. So dividends in capital gains are double taxation. A double taxation, double jeopardy should be banned. Just something else that's of interest since we're talking about all this and corporate taxes and everything. Hopefully this is interesting to you guys. Corporations don't pay taxes and businesses don't pay taxes. Corporations don't pay taxes on the interest payments they make on the debt that they take. So for example, if I want to fund a project as a business, it's cheaper for me to borrow money than to raise money in the stock market because the interest I pay on the borrowed money is not taxed. You deduct it from earnings so you don't pay corporate taxes on it. But the dividends I pay are taxed at the corporate level and at the individual level. The interest gets taxed only at the individual level. So by the way, that's a way to make sure that businesses are over-leveraged. They have too much debt. So one way to guarantee that businesses who have too much debt is to do what I just described which is exactly what's going on in America today. Now we're going to triple tax, triple tax, triple tax, three taxes, stock buybacks. We're going to tax them at the level, we're going to tax the income at the level of the corporate tax. We're going to tax the capital gains at the level of the individual when they sell their stock. And we're going to tax the transaction. So what our Democratic senators are saying to us, what Democrats more broadly are saying to us is we don't want businesses to give shareholders their money back. We don't want businesses to give the money to the people who actually own the business, right? There's a good quote, let me see. Yeah, here's the quote from Schumer, right? There's Chuck Schumer. He says, I hate stock buybacks. Everybody hates stock buybacks. I think they're one of the most self-serving things that corporate America does. Companies instead should be investing in worker training, research, modernizing equipment and other activities. Now, should companies always be investing in worker training, research, modernizing equipment and other activities? Not if they have negative economic value. If they have a negative economic value, they shouldn't be investing in those things. And if a corporation can't find good investments for their money, they should return the money to shareholders, it's theirs. And it's not self-serving for the managers, for the corporation, whatever the hell that is. It is self-serving for shareholders, but it's their corporation. It's private property. It's, I mean, this campaign against stock buybacks has been going on for like 20 years I've been hearing about it. Finally, Democrats seem to figure out how to stop share buybacks by taxing them when you tax something yet less of it. But from an economics perspective, from purely economics perspective, this is insanity. It's destructive. It's a way to reduce value in corporate America. It's to reduce share value. By the way, why did Apple take on debt in order to buy back stocks? It's a tax and interest rate arbitrage. You can, the return on Apple stock is much higher than interest rates. So they'd match rather, this is the consequence of the Federal Reserve keeping interest rates so low, we have real negative interest rates in the United States right now, borrow money at negative interest rates, give the, you know, give the money to shareholders. The interest you pay on the debt that you took is tax deductible. So that negative interest rate is even lower, negative real interest rate, right? Given inflation is a 9%, you're paying 7%, that's a negative 2% real interest rate. And if you then can deduct from taxes, it's even lower than that, that's a beautiful thing. I would do that all day long. I would do that all day long. If I could increase my mortgage right now at the interest rate that I got it at, three and three quarters, now I can't deduct the mortgage interest in Puerto Rico, but if you're in the United States, you have fixed rate mortgage for 30 years and I don't know, 3%, 4% and you can increase that loan. Of course you should increase that loan because as inflation speeds up, then the nominal value of your home goes up, the value of your debt doesn't. It goes down and you make a killing. So yeah. So this is just, it's just, this is the kind of tax that's infuriating. It's the kind of tax that nobody's gonna really speak up against. You're not seeing Republicans that perplexing about this. Nobody cares about this because it's a stock buyback, so everybody hates that. But it is an unbelievably destructive tax. It's the kind of tax that's gonna have all kinds of little impacts out there gonna change corporate behavior, gonna change the way businesses do business. It's gonna increase the amount of cash that corporations have on their books. It's gonna make corporations just a little bit lazier, a little bit less efficient, a little bit prone to invest in stupid projects and it's not something anybody's gonna rush to get rid of. It's one of those things that once they get instituted is gonna be with us forever. And super destructive, completely stealth. Nobody out there cares. So cinema changed it from carried interest to this. I mean, carried interest would have been a disaster as well. It would have had with the private equity industry, which is an incredibly important industry. But again, nobody would have cared about that. As I said, the Trump bill from 2018 already started to shrink the carried interest. So it truly is one of these little tweaks they make to tax code that ultimately is going to have profound impacts down the road. And this is the kind of analysis you won't hear in anybody else's show. 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