Trickle down is bullshit

Jiggyfly

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Why Big Corporations Would Rather Waste Billions Of Dollars Than Give It To Workers
BY BRYCE COVERT MAR 4, 2015 8:08 AM

The amount of money large American companies spent on buying back their own stock to prop up their share prices just hit a record high.
Companies in the Standard & Poor’s 500 index spent $104.3 billion on planned stock buybacks in February, which is almost twice what they spent last year and is the most since data tracking began in 1995. Buying back a company’s own stock shares decreases the number of available shares and therefore inflates the value of each that remain, enriching the shareholders who already own them. In February, companies announced an average of more than $5 billion buybacks every day. As of October, they were poised to spend an amount equal to 95 percent of their earnings on buybacks and shareholder dividends for the year.

Stock buybacks don’t do anything, however, to increase actual company productivity or performance. These companies collectively hold $1.75 trillion in cash and marketable securities, according to Bloomberg, an impressive sum. But as the figures on buybacks show, little of it is being reinvested in the companies themselves. A paper from the Roosevelt Institute finds that while between the second half of 2009 and the end of 2013 corporate borrowing increased by $900 billion, just $400 billion was put toward corporate investment, compared to $740 billion spent on shareholder payouts, or in other words stock repurchases and dividends. Between 2003 and 2012, stock buybacks absorbed 54 percent of S&P 500 companies’ earnings and dividends took up another 37 percent, leaving little left over to put toward hiring more workers or paying current ones more.

For example, if Walmart spent the money it spends on stock repurchases on employee wages instead, it could give them all at least $25,000 a year. But Walmart is far from the only company handing money to shareholders instead of workers: wages are growing at the slowest rate since the 1960s and they have been flat or declining for the vast majority of workers since 1979. Corporate profits also bounced back much faster than the unemployment rate in the wake of the recession.

These trends coincide with the rise in stock buybacks. Over the last 30 years, companies switched from investments to a focus on stock prices. The Roosevelt paper notes, “Whereas firms once borrowed to invest and improve their long-term performance, they now borrow to enrich their investors in the short-run.” In the ’60s and ’70s, each additional dollar a company brought in either through higher earnings or borrowing money was associated with a 40-cent increase in investment. But since the 1980s, each dollar meant less than 10 cents got invested, while payouts to shareholders through stock buybacks and dividends have nearly doubled. This trend “may help explain why higher corporate profits in recent business cycles have generally failed to lead to high levels of investment,” the paper’s author writes.

Why put so much money toward shareholders? Companies can sometimes get direct pressure from them to spent money this way. “From an investor’s standpoint, you want the highest return on your dollar, period,” Neil Grossman, chief investment officer of Tkng Capital Partners, told Bloomberg. “If the highest return comes not from growing your business but buying your shares back, that’s fine.”

But it also benefits executives themselves. Executive compensation has become increasingly tied to stock performance, so when buybacks prop up the value of a company’s shares, it also drives up their pay. That’s despite the fact that higher CEO pay isn’t correlated with better company performance or results for shareholders. In fact, the 10 companies that spent the most on stock buybacks between 2003 and 2012 paid their CEOs an average of $168 million each, 58 percent of which was stock based, despite the fact that only three outperformed the S&P 500 benchmark index.

Spending money to boost stock prices instead of investments is perfectly legal and loosely regulated. As economist William Lazonick has pointed out, stock repurchases made on the open market have had “virtually no regulatory limits since 1982.” One way to tamp down on the trend would be to have the SEC more closely regulate them. But it may also require tackling a corporate culture that rewards short-term gain over long-term performance.
 

Jiggyfly

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This is what needs to be addressed if we want to have an american middle class again.

Workers need to benefit from the success of the companies more.
 

Clay_Allison

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I think it made sense in a less globalized economy, but there's no specific 'down' place for the rich to take their money. It's more like 'trickle out' where the money goes overseas to be hidden in shell corporations or invested in foreign markets or opening a new sweat shop in Indonesia.
 

L.T. Fan

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Paying out to stockholders isn't automatically a bad thing. Consider that in many instances that stock holders are also funds invested via employee 401k programs who invests the funds into buying corporate stocks. If a company chooses to pay dividends to stockholders the investment fund of employees 401 K programs benefit as being a stockholder recipient.
 

Clay_Allison

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Paying out to stockholders isn't automatically a bad thing. Consider that in many instances that stock holders are also asa funds invested via employee 401k programs who invests the funds into buying corporate stocks. If a company chooses to pay dividends to stockholders the investment fund of employees 401 K programs benefit as being a stockholder recipient.
Stocks that pay dividends are increasingly rare, mostly energy and utility stocks. Most just try to grow in value then split. It's great for big investors who want to pay capital gains instead of income tax, bad for people who want a lifetime of investment to yield stable income.
 

L.T. Fan

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Employee 401K programs are critical to employees now because many companies have discontinued retirement pension annuities and the only retirement available to them is a 401K program.
 

skidadl

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This is what needs to be addressed if we want to have an american middle class again.

Workers need to benefit from the success of the companies more.
What do you suggest?

I'm far from an economic expert or even novice but this guy lost me when he said said that Mitt Romney sits on his ass and does nothing. lol
 

Clay_Allison

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Employee 401K programs are critical to employees now because many companies have discontinued retirement pension annuities and the only retirement available to them is a 401K program.
Well, that's not true. You have IRAs, Roth IRAs, Annuities, hundreds of other options. I thought you were a banker.
 

L.T. Fan

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Well, that's not true. You have IRAs, Roth IRAs, Annuities, hundreds of other options. I thought you were a banker.
That comes out of your pocket. 401K programs are supplemented by the employer.
 

Clay_Allison

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That comes out of your pocket. 401K programs are supplemented by the employer.
Sometimes you have to bite the bullet and put some of your own money towards your future financial security. I fully intend to.
 

L.T. Fan

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Sometimes you have to bite the bullet and put some of your own money towards your future financial security. I fully intend to.
I agree individuals should save independently of retirement programs. Those days are coming to an end.
 

Jiggyfly

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The Republican Party Must Answer for What It Did to Kansas and Louisiana
By Eric Levitz Follow @ericlevitz


Over the course of 12 debates, the Republican presidential candidates were never asked to address the budget problems in Kansas. That may not sound like an odd omission but it is. To see why, let’s take a quick trip to a parallel political universe:

In Bizarro America, the tea party never happened. Instead, the Great Recession sparked a left-wing populist movement that swept democratic socialists into statehouses all across the country. In Vermont, these Denmark-worshippers took full control of state government and implemented their radical agenda. They raised income taxes to unprecedented heights, upped the minimum wage to $15 an hour, made all state universities tuition-free, and established a single-payer health-care system. As he signed the last of these programs into law, Governor Bernie Sanders declared that Vermont would serve as a blue-state model, one that the Democratic Party’s 2016 ticket could use to say, “See, we’ve got a different way, and it works.”

But by 2016, that model had collapsed. Every warning that conservatives had made about Sanders’s program proved prescient. The tax hikes chased all the job creators out of state. The new minimum wage didn’t raise low-income workers’ living standards; it raised their unemployment rate. The costs of free college and universal health care proved so onerous, the state was forced to raid its rainy-day funds and borrow at high interest rates just to keep the government running. Vermont now faced a billion-dollar deficit. Schools were shuttered. Pensions were cut. The state’s department of social services could no longer afford to investigate child abuse. The legal system could no longer provide indigent defendants with representation. Nonetheless, in the race for the White House, every Democratic candidate ran on some version of Sanders’s economic model.

Wouldn’t it be important for those candidates to explain why their program wouldn’t fail the country in the same way it had failed the Green Mountain State? If you think yes, then you should demand that Donald Trump, John Kasich, and Ted Cruz explain why their tax policies won’t fail America in the same way they’ve failed the people of Kansas.

In 2010, the tea-party wave put Sam Brownback into the Sunflower State’s governor’s mansion and Republican majorities in both houses of its legislature. Together, they implemented the conservative movement’s blueprint for Utopia: They passed massive tax breaks for the wealthy and repealed all income taxes on more than 100,000 businesses. They tightened welfare requirements, privatized the delivery of Medicaid, cut $200 million from the education budget, eliminated four state agencies and 2,000 government employees. In 2012, Brownback helped replace the few remaining moderate Republicans in the legislature with conservative true believers. The following January, after signing the largest tax cut in Kansas history, Brownback told the Wall Street Journal, “My focus is to create a red-state model that allows the Republican ticket to say, 'See, we've got a different way, and it works.' "

As you’ve probably guessed, that model collapsed. Like the budget plans of every Republican presidential candidate, Brownback’s “real live experiment” proceeded from the hypothesis that tax cuts for the wealthy are such a boon to economic growth, they actually end up paying for themselves (so long as you kick the undeserving poor out of their welfare hammocks). Backers of the budget touted projections from the Kansas Policy Institute, which predicted it would generate $323 million in new local revenues by 2018. But marginal gains at the municipal level were dwarfed by the $688 million loss that Brownback’s budget wrought in its first year of operation.* Meanwhile, Kansas’s job growth actually trailed that of its neighboring states. With that nearly $700 million deficit, the state had bought itself a 1.1 percent increase in jobs, just below Missouri’s 1.5 percent and Colorado’s 3.3.



Those numbers have hardly improved in the intervening years. In 2015, job growth in Kansas was a mere 0.1 percent, even as the nation’s economy grew 1.9 percent. Brownback pledged to bring 100,000* new jobs to the state in his second term; as of January, he has brought 700. What’s more, personal income growth slowed dramatically since the tax cuts went into effect. Between 2010 and 2012, Kansas saw income growth of 6.1 percent, good for 12th in the nation; from 2013 to 2015, that rate was 3.6 percent, good for 41st.

Meanwhile, revenue shortfalls have devastated the state’s public sector along with its most vulnerable citizens. Since Brownback’s inauguration, 1,414 Kansans with disabilities have been thrown off Medicaid. In 2015, six school districts in the state were forced to end their years early for lack of funding. Cuts to health and human services are expected to cause 65 preventable deaths this year in Sedgwick County alone. In February, tax receipts came in $53 million below estimates; Brownback immediately cut $17 million from the state’s university system. This data is not lost on the people of Kansas — as of November, Brownback’s approval rating was 26 percent, the lowest of any governor in the United States.

Louisiana has replicated these results. When Bobby Jindal moved into the governor’s mansion in 2008, he inherited a $1 billion surplus. When he moved out last year, Louisiana faced a $1.6 billion projected deficit. Part of that budgetary collapse can be put on the past year's plummeting oil prices. The rest should be placed on Jindal passing the largest tax cut in the state's history and then refusing to reverse course when the state's biggest industry started tanking. Jindal's giveaway to the wealthiest citizens in the country's second-poorest state cost Louisiana roughly $800 million every year. To make up that gap, Jindal slashed social services, raided the state’s rainy-day funds, and papered over the rest with reckless borrowing. Today, the state is scrambling to resolve a $940 million budget gap for this fiscal year, with a $2 billion shortfall projected for 2017. Like Bizarro Vermont, Louisiana can no longer afford to provide public defenders for all its criminal defendants. Its Department of Children and Family Services may soon be unable to investigate every reported instance of child abuse. Education funding is down 44 percent since Jindal took office. The state’s hospitals are likely to see at least $64 million in funding cuts this year.


What has happened to these states should be a national story; because we are one election away from it being our national story. Ted Cruz claims his tax plan will cost less than $1 trillion in lost revenue over the next ten years. Leaving aside the low bar the Texas senator sets for himself — my giveaway to the one percent will cost a bit less than the Iraq War! — Cruz only stays beneath $1 trillion when you employ the kind of “dynamic scoring” that has consistently underestimated the costs of tax cuts in Kansas. Under a conventional analysis, the bill runs well over $3 trillion, with 44 percent of that lost money accruing to the one percent. John Kasich’s tax plan includes cutting the top marginal rate by more than ten percent along with a similar cut to the rates on capital gains and business taxes. Even considering Kasich’s appetite for Social Security cuts, his plan must rely on the same supply-side voodoo that Kansas has so thoroughly discredited. As for the most likely GOP nominee, even with dynamic scoring, his tax cuts would cost $10 trillion over the next ten years, with 40 percent of that gargantuan sum filling the pockets of Trump’s economic peers.

If any of these men are elected president, they will almost certainly take office with a House and Senate eager to scale up the “red-state model.” Senate Majority Leader Mitch McConnell has said of Brownback’s Kansas, “This is exactly the sort of thing we (Republicans) want to do here, in Washington, but can’t, at least for now.” Speaker of the House Paul Ryan’s celebrated budgets all depend on the same magical growth that has somehow escaped the Sunflower State.

This campaign cycle has inspired an unusual amount of soul-searching in Republican circles. The rise of Trump has forced many conservatives to reckon with the moral odiousness of Nixon’s Southern Strategy — a blueprint for GOP electoral success that relied on coded appeals to white racial animus. Unfortunately, the fall of Kansas has failed to inspire a similar reckoning with the policies that those ugly advertisements were designed to sell. The GOP front-runner’s praise of mob violence and religious discrimination has spurred much righteous outrage from the National Review. Kansas’s shortened school-years have spurred none.

When Donald Trump makes a gaffe, reporters confront Republican leaders and demand a response. When the GOP's economic platform decimates two U.S. states, a similar confrontation is in order.
 

Jiggyfly

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I think it made sense in a less globalized economy, but there's no specific 'down' place for the rich to take their money. It's more like 'trickle out' where the money goes overseas to be hidden in shell corporations or invested in foreign markets or opening a new sweat shop in Indonesia.
There is a place.

They can use those record profits to pay their employees more, raise their profit sharing plans.
 
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Jiggyfly

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What do you suggest?

I'm far from an economic expert or even novice but this guy lost me when he said said that Mitt Romney sits on his ass and does nothing. lol
I don't have a quick fix but I think the people who are doing the actual labor should have more of a stack in the profits.

Salary is the 1st place most businesses look at to increase profits, we are not talking about companies trying to stay afloat, we are talking about record profits.
 

skidadl

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I don't have a quick fix but I think the people who are doing the actual labor should have more of a stack in the profits.

Salary is the 1st place most businesses look at to increase profits, we are not talking about companies trying to stay afloat, we are talking about record profits.

Right but how are you suggesting we change that? by telling everyone that it sucks?
 

Cowboysrock55

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Salary is the 1st place most businesses look at to increase profits, we are not talking about companies trying to stay afloat, we are talking about record profits.
No it's not. That's like the last place they go. And they don't cut salaries, they cut employees. It's usually because they don't have enough work to justify that many employees.

I have a better idea though, why don't we just remove all the bullshit regulation that prevents employees from having the opportunity to become an employer themselves. Then they can just become the boss and sit on easy street like you think.
 

skidadl

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Yes but what does that have to do with anything?

90% of all politicians are.

Is this supposed to be some kinda gotcha question?
Well, this guy was ranting about economics. It took about 20 seconds to figure out that he's a democrat. He launches a few missiles at Mitt Romney (another undercover democrat) but the main democratic candidate is a big oil, wall street, corporate whore. So what I said was pretty relevant to the convo.
 
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