Rep. Keith Ellison Takes On Wall Street And Introduces Bill To Curb Stock Buybacks

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Written by Ann Brown

Wall Street’s is on a buyback frenzy, and  Rep. Keith Ellison (D-Minn.) wants to put an end to the practice. Ellison, who is running for attorney general of Minnesota to be a better position to combat Trump’s policies, has offered a bill in the House to curb stock buybacks. The problem, according to Ellison, is that companies’ share repurchases have increased since the GOP tax law was passed in December. This, said Ellison, is just making the wealthy richer–and this is unfair to the rest of Americans.

“Large corporations have used their recent tax break to close plants and offshore jobs, all while spending record billions on buybacks to enrich their own executives,” Ellison said in a statement. “Workers deserve a larger share of the profits they produce and a seat at the table, and this law will make sure they get it.”

Companies have been taking advance of the new law. “Buybacks, which boost stock prices by making shares scarcer, have exploded in 2018 thanks to the huge windfall created by President Trump’s new tax law. American companies like Pepsi (PEP) and Cisco (CSCO) have announced a total of $229 billion of buybacks so far this year, according to research firm TrimTabs. Companies are on track to buy back the largest number of shares in at least a decade,” CNN reported.

While the practice of buybacks is a common occurrence, Ellison, said companies are using them to their advantage and misleading the public. Nobel Prize-winning economist Robert Shiller called buybacks a case of “smoke and mirrors.”

Stock buybacks refer to the repurchasing of shares of stock by the company that issued them. A buyback occurs when the issuing company pays shareholders the market value per share and re-absorbs that portion of its ownership that was previously distributed among public and private investors. With stock buybacks, aka share buybacks, the company can purchase the stock on the open market or from its shareholders directly,” Investopedia reported. Buybacks are a win-win for companies who can do this to pay off investors and reduce the overall cost of capital.

Under Ellison’s bill, companies would be banned from offering stock buybacks on the open markets.

Of course, each side of the aisle sees the issue differently. “While Democrats argue that buybacks show that the tax law is largely helping the wealthy, Republicans say that buybacks aren’t a bad thing. They argue that middle-class taxpayers who hold stocks in retirement accounts can benefit from buybacks, and that buybacks improve the efficiency of capital investments,” The Hill reported.

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GS Acquisition Holdings Corp. CEO David Cote, right, rings a ceremonial bell on the floor of the New York Stock Exchange, as his company’s IPO begins trading, Friday, June 8, 2018. At left is NYSE Vice President Chris Taylor. (AP Photo/Richard Drew)