Why Apple, Warren Buffett, And Others Use Stock Buybacks

Companies like Apple and Walmart purchase outstanding shares of their own stock in a practice known as buybacks. Over the last year there's been an increase in politicians questioning buybacks and whom they actually benefit. In December 2017 President Donald Trump signed the GOP tax cut, which took effect the next month and lowered corporate tax rates from 35 percent to 21 percent.

The bill was supposed to spur corporations to reinvest those savings back into their own companies, thus creating jobs and employment opportunities and allow companies to pay higher salaries. Many businesses spent more on internal projects, at least initially. But business investment slowed later in the year, as concerns about the economy grew.

At the same time, companies used their cash to buy back a record $1.1 trillion worth of their own shares, leading Democrats to propose legislation limiting buybacks unless companies raise their minimum wage to $15 and agree to other employee benefits. Republicans like Senator Marco Rubio have suggested raising the capital gains rate to discourage buybacks.

SEC Commissioner Robert Jackson Jr. recently expressed his belief that most buybacks are better for executives than for shareholders. And that could give new momentum for the Securities and Exchange Commission to change the rules.

Source: CNBC