For all the tortuous interactions with now-President Donald Trump that Apple CEO Tim Cook has endured over the past few years, in late April he was still making the rounds at fancy White House events – probably because his company has, all told, been a major beneficiary of Republican-backed tax cuts. Today, Apple revealed where a big chunk of the $US252 billion ($336 billion) it’s hoarded overseas but has agreed to bring back to the US in exchange for a sweetheart tax deal is going: Stock buybacks.
Tim Cook. Photo: AP
Per The New York Times, Apple has said it would purchase $US100 billion ($133 billion) of its stock back from investors, “by far the largest increase in its already historic record of returning capital to investors”.
Though the paper noted the company didn’t provide a timeline for the buybacks to commence, it added that it’s part of a booming trend in firms using corporate tax cuts to funnel money towards investors, not necessarily employees or long-term investments:
Share buybacks, which are reaching record levels, are great for investors, including executives and employees, because they reliably lift stock prices by limiting the supply of shares for sale.
But critics say the actions can take money away from potential investments in hiring or research and development, and can increase economic inequality because they typically benefit wealthier people.
Investors should want companies to reinvest in themselves and their employees versus repurchasing their own stock to increase the share price, said William Lazonick, an economics professor at the University of Massachusetts, Lowell, who studies stock buybacks. “It’s nothing but a manipulation of the stock market.”
Apple surely has numerous employees who might stand to benefit by cashing out, and it did issue $US2500 ($3332) stock-based bonuses in celebration of the tax cuts.
But the primary beneficiaries of buybacks tend to be major investors and corporate executives who get shares as part of their compensation packages, who tend to already be rich. In fact, CNN reported that as of 2016, some 10 per cent of US households owned 84 per cent of all stocks, with the bottom half owning basically none.
In February, CNN estimated that Republican tax cuts had generated $US171 ($227) billion in buybacks, but only $US5.6 ($7) billion in employee bonuses and pay raises. (Fun fact: Buybacks used to be considered an illegal form of stock manipulation.)
“Stock buybacks have been a prime mode of both concentrating income among the richest households and eroding middle-class employment opportunities,” University of Massachusetts Lowell professor William Lazonick told CNN. PNC chief economist Gus Faucher added that while buybacks are not the “cause” of inequality, they’re a symptom of an economy where “The benefits of economic growth are going towards capital owners instead of workers”.
London Business School business professor Alex Edmans told the Times that buybacks do tend to benefit companies long-term, but that they also tend to happen when companies don’t really have any profitable things left to invest in.
Yet one might question whether a state of affairs where Apple can afford to spend $US100 billion ($133 billion) of its tax-cut payday mostly on making rich people richer is really all that fair, considering Apple made off with paying just $US38 billion ($51 billion) in taxes on that $US252 billion ($336 billion), which is around 15.5 per cent.
And while Apple has announced an additional $US37 billion ($49 billion) in new expenditures that will involve job creation, the supposed hundreds of billions the company would be spending to create jobs was a key plank in Trump’s messaging on the tax cuts.
To put it another way, looking where all this money is flowing should be a reminder where Apple’s priorities are: Right in line with all the other huge corporations.
In any case, Apple will continue to be a money factory regardless of where the profits end up going, according to the Times:
Apple said its profit increased 25 per cent to $13.8 billion [$AU18 billion] in the most recent quarter on the back of strong revenue growth for iPhones, the Apple Watch and its services business. Apple earned $2.73 [$AU3.64] a share, it said, beating Wall Street estimates by 6 cents [$AU0.08]. Revenue rose 16 per cent to $US61.1 billion [$AU81 billion].
While analysts had wondered whether the iPhone X was too expensive for customers, the paper added, it contributed to an 11 per cent increase in the average cost of a device that in turn grew iPhone revenue by 14 per cent.