Stock Buybacks Surge.

Shell game? Fiscally prudent? Legal corporate malfeasance? Corporate stock buybacks have inspired great debate since a Reagan era tax law change and a Clinton era deal sweetener.

Buybacks are back in the news today because in April, U.S. corporations announced a staggering $233.8 billion in stock buybacks—the second-highest monthly total ever recorded. But unlike previous buyback bonanzas, this isn’t a sign of economic strength or corporate confidence. Quite the opposite.

This time, it’s a bit of a red flag.

Companies aren’t plowing this cash into their businesses because they see amazing growth opportunities. They’re not investing in innovation, workers, or expansion. Instead, some argue they’re spending billions to prop up their own share prices in a cynical bid to boost executive bonuses tied to stock performance.

Dry Powder: Corporations Are Sitting on a Mountain of Cash

Corporate America is sitting on mountains of cash. According to the St. Louis Fed, corporate America came into the year with $209 billion in cash reserves. This kind of dough can be used to issue dividends to shareholders, invest in projects, pay down debt, bonus employees, invest in the market, chill for a rainy day or to purchase back shares of its own company. That’s what we’re seeing thus far in 2025 in a rather significant way.

One of the major criticisms is that companies that participate in buybacks are doing so to artificially inflate their stock prices. The current buyback bonanza seems to reflect a desire to boost share value rather than investing in the future; kind of a vote of no confidence in the economy and the Trump administration’s economic stewardship, all while executives cash in their stock options before the whole house of cards comes tumbling down.

Today, we’re unf*cking the twisted history of how we got here—from the Reagan-era deregulation that unleashed this monster, to the Clinton-era tax policies that supercharged executive greed, to the pathetic attempts by the Biden administration to rein it in with a microscopic excise tax.

Let’s start with the numbers, because they’re truly staggering. As I mentioned, in April alone, corporate America announced plans to buy back $233.8 billion of their own shares. Companies like Apple, Visa, Wells Fargo, Delta, and 3M are all getting in on the action. According to Birinyi Associates, over the past three months, buyback announcements have exceeded $500 billion.

That’s half a trillion dollars that could have gone to raising wages, funding research and development, or investing in new facilities. Instead, it’s being used to manipulate stock prices and enrich shareholders—primarily the wealthiest Americans, who own the vast majority of stocks. You may have noticed that the stock market has been unnerved by the tariff war, quickly retreating from record highs in 2024. But in the past week or so, the market has rebounded. If you guessed what I’m going to say next, then you’re a regular here—bravo.

Repeating our mantra with religious fervor:

The market is not the economy.

The market is not the economy.

That said, there are signals one can take from investor behavior that show you exactly what they’re thinking about the economy. The recent rebound in the market would normally be interpreted as a good thing. The market uses a phrase called “priced in,” meaning that it’s always ahead of the real economy. So the bulls and optimists would say, investors are looking past the trade war and thinking things are going to rebound on the flip side.

What makes this round of buybacks troubling, however, is the timing and context. Just a month earlier, in March, many of these same companies were hoarding cash. But as soon as their first-quarter earnings reports turned out "better than feared," they immediately pivoted to shoveling that cash to shareholders rather than investing it in growth. Everyone knows that we were frontrunning inventory ahead of the tariffs and that earnings reflect the prior quarter activity. In fact, most executives on earnings calls were predicting tough sledding. So piling cash into shares was actually a defensive move. But why?

This is corporate short-termism at its most damaging. It reveals a fundamental lack of faith in the economy’s long-term prospects under the current administration. Companies are effectively saying: “We don’t see promising opportunities to invest in our businesses, so we might as well artificially inflate our share prices instead.”

And inflate they do. Stock buybacks reduce the number of outstanding shares, which mathematically increases earnings per share even when actual earnings haven’t grown. It’s financial engineering masquerading as performance—a sleight of hand that props up executive bonuses while adding zero actual value to the economy. It wasn’t always this way.

How Buybacks Became Legal

To understand how we wound up in this situation, we need to go back to 1982, when the Reagan administration’s SEC chairman, John Shad—a former Wall Street executive, because of course he was—implemented Rule 10b-18.

Before this rule, stock buybacks were generally avoided by corporations because they could be interpreted as illegal market manipulation. Which, let’s be honest, is exactly what they are. You’re using corporate funds to artificially influence your own stock price. In any other context, we’d call that market manipulation, but the Reagan-era SEC created a convenient “safe harbor” provision that essentially legalized this practice.

Rule 10b-18 gave corporations a green light to repurchase their own shares without fear of being accused of market manipulation, as long as they followed some laughably permissive guidelines. It was deregulation at its finest—another win for the “free market” fundamentalists who dominated economic policy in the ‘80s.

Through the ‘90s and into the 2000s, buybacks exploded. By the early 2000s, S&P 500 companies were spending more on buybacks than on dividends. By 2007, S&P 500 companies were spending nearly 90% of their earnings on share repurchases and dividends, leaving precious little for investment, research, or workers.

This wasn’t some accidental side effect. It was by design—a deliberate shift in how American capitalism functions, prioritizing short-term shareholder returns over long-term investment and broad-based prosperity. In so many ways, Clinton was Reagan on steroids especially when it came to deregulation and financial engineering.

If Reagan-era deregulation opened the door to buybacks, it was a Clinton-era tax policy that turned them into an executive compensation bonanza.

In 1993, the Clinton administration pushed through Section 162(m) of the IRS tax code. Like so many “New Democrat” initiatives, on the surface it sounded like a progressive policy aimed at reining in excessive executive pay. The law capped the corporate tax deductibility of executive compensation at $1 million per executive for publicly traded companies.

Problem solved, right? Wrong. The law included a massive loophole: “performance-based” pay—such as stock options and certain bonuses—was exempt from the cap.

The results were exactly the opposite of what was ostensibly intended. Rather than limiting executive compensation, Section 162(m) caused it to explode. Companies simply capped base salaries at $1 million and shifted compensation to stock options and performance bonuses tied to—you guessed it—stock price.

Between 1992 and 2000, CEO compensation at major firms skyrocketed from $4.9 million to over $20 million—a more than 400% increase. And the vast majority of this explosive growth came in the form of stock options and performance-based pay that was fully tax-deductible for corporations.

The perverse incentives created by this policy can’t be overstated. By tying executive compensation so directly to stock price, Section 162(m) gave corporate leaders an overwhelming personal financial incentive to boost share prices by any means necessary—including stock buybacks.

Suddenly, CEOs could enrich themselves to an unprecedented degree by directing corporate cash toward buybacks rather than productive investments. Why build the business for the long term when you can goose the stock price in the short term and cash out your options?

The Clinton-era rule didn’t just fail to control executive pay—it supercharged it and fundamentally changed the incentive structure for corporate leaders across America. It was neoliberalism at its absolute worst: a policy that claimed to address inequality while actually accelerating it.

Biden Era Window Dressing

Fast forward to 2022. After decades of buybacks draining productive investment from the economy and widening inequality, the Biden administration finally took action with a small and ineffective measure.

As part of the Inflation Reduction Act, a 1% excise tax was imposed on stock buybacks by publicly traded corporations. That’s right—a measly 1%.

According to federal estimates, this tax raised approximately $7.9 billion in fiscal year 2024. That might sound like a lot, but it’s a rounding error compared to the hundreds of billions corporations spend on buybacks every year. It’s not even a slap on the wrist.

The SEC also implemented new disclosure requirements in 2023 and 2024, forcing companies to report daily repurchase activity on a quarterly basis and provide qualitative explanations for their buyback programs. Transparency is nice, but it doesn’t address the fundamental problem.

These half-measures were predictably ineffective. The evidence is right in front of us: April’s $233.8 billion buyback bonanza shows that corporations aren’t remotely deterred by a 1% tax or enhanced disclosure requirements.

The Biden administration’s approach to buybacks exemplifies the fundamental weakness of centrist Democratic economic policy: identifying real problems but lacking the political courage to implement real solutions. It’s regulatory theater—the appearance of action without the substance.

The defenders of stock buybacks—and there are many in the financial media and neoliberal think tanks—argue that buybacks efficiently allocate capital back to shareholders who can then reinvest it in more productive ventures.

This is, to use a technical economic term, complete and utter bullshit.

The reality is that buybacks have coincided with a massive decline in productive investment by American corporations. The share of GDP going to corporate investment has been trending downward for decades, even as profits have soared. Meanwhile, inequality has skyrocketed, with the gains from economic growth increasingly concentrated among those who own significant amounts of stock—primarily the wealthiest Americans.

Research has consistently shown that buybacks often come at the expense of workers, research and development, and long-term growth. A 2017 study found that companies that do buybacks cut investment in the following year. Another study from the Roosevelt Institute found that corporations have increasingly used debt to finance buybacks, leaving them more vulnerable to economic downturns.

Perhaps most damning is the evidence of insider self-dealing. An SEC study found that executives’ sale of personally owned stocks increased from an average of $100,000 per day to $500,000 per day immediately following their companies’ buyback announcements. In other words, corporate executives are using company money to pump up stock prices, then personally cashing out at those inflated prices.

The macroeconomic impacts are equally troubling. By diverting corporate cash from productive investment to financial engineering, buybacks contribute to secular stagnation, wage stagnation, and increased financial fragility. They’re a major factor in the financialization of the American economy, where paper wealth grows far faster than the real economy. That’s the phenomenon that Giovanni Arrighi was referring to in his breakdown of hegemonic decline as we discussed in our recent essay on the repo markets. When an economic superpower reaches the financialization phase of an economy, sacrificing labor and productivity along the way, it looks for ways to engineer profits that benefit fewer and fewer people in the investor class.

Closing Thoughts

So what’s to be done about this massive ongoing transfer of wealth from workers and the broader economy to shareholders and executives?

Real reform would acknowledge that the Clinton-era compensation cap didn’t work. We need to close the loophole in Section 162(m) that exempts “performance-based” pay from the $1 million deductibility cap. This would remove one of the primary incentives for executives to pursue buybacks at the expense of productive investment.

The excise tax on buybacks also needs to be raised significantly to force corporations to think twice about whether buybacks are the best use of their capital compared to investing in their workforce, research, or physical capital. And before anyone cries foul at a higher level of taxation, corporations still have the option to reward shareholders through dividends.

My overarching opinion, probably due for a much deeper dive another day, is that corporations should be taxed at a much higher rate. Hit the corporations for taxes at the root of it and nail individuals for tax evasion. The fact that corporations are sitting on so much “dry powder” that they can blow hundreds of billions on buybacks is a direct result of decades of declining effective corporate tax rates and massive loopholes in the tax code.

Despite the headline corporate tax rate, many profitable corporations pay little to no federal income tax. The Trump tax cuts of 2017 made this situation even worse, flooding corporations with cash they’ve largely used for—you guessed it—more buybacks.

Restoring corporate tax rates to their historical norms—around 35% or higher—and closing loopholes would reduce the cash available for financial engineering and create stronger incentives for productive investment. This is usually where Republicans and Wall Street types lose their fucking minds saying that we need to make doing business more attractive in the United States by keeping taxes low.

Well, maybe if they hadn’t privatized so many public benefit corporations along the way; busted up unions to the point where only 11% of U.S. workers have union membership; or that according to the National Bureau of Economic Research more than 1.5 million U.S. taxpayers hold money in offshore havens—that’s .004% of the population, in other words, 60% of the associated funds are held by the top 10% of the 1%—then maybe we wouldn’t have to do this now would we?

At best, we’re talking about a couple thousand Americans that are hiding funds that grow exponentially each year because they’re putting upwards of $30 billion more each year into their pockets through tax evasion. And thanks to reporting from the ICIJ that sifted through the Panama Papers and other leaks, we now know that of the estimated $10 trillion stashed in offshore accounts, that a little more than $3 trillion of it is from Americans. So I don’t want to hear your bullshit about fairness and competitiveness.

But ultimately, addressing buybacks is just one part of a much larger project: restructuring American capitalism to serve the many rather than the few. We need to fundamentally reimagine corporate governance, with stronger labor representation on boards, incentives that reward long-term investment rather than short-term financial manipulation, and a tax system that promotes shared prosperity rather than concentrated wealth.

Until we muster the political will to make these changes, we’ll continue to witness the spectacle of corporate America cannibalizing itself for the benefit of executives and wealthy shareholders—all while the real economy stagnates and ordinary Americans struggle to make ends meet.

The April buyback bonanza isn’t just a financial news story—it’s a symptom of a deeply diseased economic system that prioritizes wealth extraction over wealth creation. It’s time we called it what it is: legalized theft on a massive scale.

Here endeth the lesson.