Hill rebuts call to limit firm buybacks

After U.S. Sens. Charles Schumer, D-N.Y., and Bernie Sanders, I-Vt., called for restricting a popular type of stock transaction, U.S. Rep. French Hill, R-Ark., delivered a rebuttal. The debate took place on a high-profile stage — the pages of The New York Times.

When companies make money, they have several options. They can pay dividends to their stockholders, they can spend the money, they can save some of it or they can use it to buy back their own stocks.

With fewer shares available, those that remain are more likely to go up in value.

Now that corporate tax rates have fallen from 35 percent to 21 percent, U.S. businesses are keeping a larger share of their profits. And many of them are using the money to repurchase their own shares; buybacks topped more than $1 trillion last year.

In an opinion piece Feb. 4, Schumer and Sanders said a corporation should be prohibited from buying back its shares “unless it invests in workers and communities first, including things like paying all workers at least $15 an hour, providing seven days of paid sick leave, and offering decent pensions and more reliable health benefits.”

They also criticized Walmart Inc. for closing dozens of Sam’s Club locations and laying off thousands of employees, just months after authorizing up to $20 billion in stock buybacks.

On Monday, Hill’s response appeared in the Times as a Letter to the Editor.

The types of government actions the senators had advocated would “undermine the free market” and could have “unintended consequences for the investor,” he wrote.

“Government policy has no business meddling with capital allocation. Boards should take full responsibility for the decisions that affect their shareholders,” the lawmaker from Little Rock said.