Weeks before the Republican-led Congress moved toward final passage of its corporate tax cut bill, major companies had already begun a surge of stock buybacks — confirming critics’ fears that the windfall of lower rates will be used for self-enrichment rather than job growth.
Home Depot led the buyback splurge, pocketing $15 billion. On an earnings call held earlier this month, the company’s CFO Carol Tomé quietly admitted the strategy, when asked about the impact of tax reform on the firm:
It really all depends on if it happens and when it happens and how we would spend it. Cash is fungible. Right now, we’re thinking it might not happen until 2019, so obviously we are using internally generated cash in 2018 to invest in the business and return capital to our shareholders. If it were to happen in 2019, we might use the tax — cash tax savings to invest in the business and then use — generated cash to back buy [sic] shares, it’s all fungible. The point is, we’re going to generate a lot, we may get some from tax reform and we will use it. We will invest back in the business, and we will return it our shareholders.
By “return is to our shareholders,” she is referring to a buyback, which drives up the price of a stock and can come with dividends as well. Typically, executives hold much of their wealth in company stock, and their compensation is tied to the performance of the shares.
Other corporations are expected to use the windfall to increase mergers and acquisitions (M&A) or invest in automation. “Industry executives have been eagerly anticipating tax reform in earnings calls, interviews and casual conversation all year. Multiple CEOs have projected major M&A activity will follow if any kind of corporate rate reduction is finalized, further accelerating the rapid pace of consolidation in the industry,” wrote one industry publication about how waste companies are anticipating tax reform.
But the House Republicans who wrote and passed the tax bill on Tuesday have ignored these warnings. In interviews with The Intercept, members suggested that stock buybacks, as well as M&A, will either be rare or not that harmful to the economy.