Heather Slavkin Corzo is Director of Capital Markets Policy for the AFL-CIO. This post is based on a rulemaking petition submitted by AFL-CIO and others to the Securities and Exchange Commission. Related research from the Program on Corporate Governance includes Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay by Jesse Fried (discussed on the Forum here) and Short-Termism and Capital Flows by Jesse Fried and Charles C. Y. Wang (discussed on the Forum here).
Petitioners signed below respectfully submit this petition for rulemaking pursuant to Rule 192(a) of the Commission’s Rules of Practice.
In 1982, the Securities and Exchange Commission (“SEC” or “Commission”) finalized Rule 10b-18, 17 C.F.R. § 240.10b-18, (“Rule 10b-18” or “the Rule”). Rule 10b-18 provided companies with a “safe harbor” to undertake stock repurchase (or “buyback”) programs without being subject to liability for manipulation under the Securities and Exchange Act of 1934. Stock repurchase programs have grown in size and importance since Rule 10b-18 went into effect. In particular, the use of the practice skyrocketed after the enactment of President Trump’s Tax Cuts and Jobs Act. The tax bill provided significant tax benefits to large corporations, such as a lower corporate tax rate and an incentive to repatriate offshore cash, and led to a 64 percent increase in stock repurchases while real wages for workers remained flat. Indeed, analysts estimate that in 2018 corporations used nearly 60 percent of their corporate tax cut to repurchase stock. In other words, at a time when wages for average workers have failed to keep up with inflation, corporations have used the corporate tax break to collectively pay $1 trillion to executives, boards of directors, and large share sellers. Instead firms could dedicate this capital to worker wages, training, hiring, and other investments necessary for innovation and growth.