The iPhone maker on Tuesday announced that it would repurchase an additional $75 billion of its own shares. The announcement comes less than a year after Apple revealed a $100 billion buyback in May 2018. The company on both occasions also said it would increase its dividend.
Apple, as it turns out, is also a major beneficiary of the Republican tax cut bill passed in December 2017. Its effective tax rate fell to about 18 percent in 2018, thanks in large part, according to its annual report, to the Tax Cuts and Jobs Act. Apple saved billions of dollars in taxes due to the legislation and was able to bring back some $250 billion in cash it had stashed overseas.
There has been a boom in stock buybacks in the wake of the tax bill, which slashed the corporate tax rate from 35 percent to 21 percent and reduced the rate on corporate income brought back to the United States from abroad. Most Americans saw their taxes reduced because of the legislation — the Tax Policy Center estimates 65 percent of people paid less in 2018. But corporate America and the wealthiest people have been the biggest beneficiaries.
The rise in buybacks has raised eyebrows among Democratic and even some Republican lawmakers as well as observers who see it as a way for companies to funnel money to shareholders instead of investing in their businesses and employees. Shareholders, meanwhile, have rewarded them. Apple’s valuation jumped back up to $1 trillion after its Tuesday announcement.
Buybacks aren’t necessarily a bad thing — there is sometimes an argument to be made that companies really don’t have anything better to do with their money than buy back stock. And in Apple’s case, it has increased investments as well.
But the Cupertino, California-based company’s announcement highlights how much of a winner it was in the tax cut bill. A lot of Americans are seeing more money in their paychecks, but not to the multibillion-dollar magnitude of the cut Apple got.
Apple is a big winner in the tax cut bill
Apple, like a lot of corporations, wasn’t paying the full 35 percent corporate tax rate even before the tax cut bill was passed, but the new legislation has been very good to it. According to the liberal-leaning Institute on Taxation and Economic Policy, dozens of profitable Fortune 500 companies paid no federal income taxes at all last year, including Amazon and IBM.
Apple’s 2018 effective tax rate was 18.3 percent, compared to 24.6 percent in 2017. It has also been able to bring back about $252 billion in offshore cash reserves that it previously parked abroad to avoid a big tax hit. As I explained last year, bringing back that money cost Apple about $38 billion under the new regime. It would have paid billions more had it brought it back under the old one. In fact, for years, Apple refused to bring back its foreign cash until the US changed the tax code to what it deemed a “fair” rate.
Apple hasn’t been shy about enjoying the tax cuts. In a call discussing the company’s earnings last year, CEO Tim Cook directly attributed the buyback and dividend hike to the tax cuts. “Tax reform makes it possible for us to execute our program more efficiently, both through share repurchases and payment of dividend to the tens of millions of investors who own Apple stock either directly or indirectly from large pension funds to individuals with retirement accounts,” he said.
Tim Cook and Donald Trump are sometimes pretty chummy
Cook has at times criticized President Donald Trump, and Trump has also gone after Apple.
While campaigning for the presidency in 2016, Trump called for a boycott of Apple products, and he has often complained that Apple should build more of its products in the United States. Cook has criticized Trump’s immigration policies and been vocal on family separation and the Muslim ban. Apple has also warned that Trump’s tariffs might force it to raise prices.
But when it comes to matters of money, Trump and Cook get along just fine.
Soon after the tax cut bill was passed, Apple was among a number of companies to make a splashy announcement about its investment plans. It said in January 2018 that it would make a $350 billion “contribution” to the US economy over five years and create 20,000 jobs. But what exactly that means — specifically, the vague “contribution” part — was unclear. Per The Verge:
That means that Apple isn’t just dropping $350 billion in cash into the US economy. It’s not entirely clear how Apple is reaching that number, but a lot of that money is just part of the company’s normal accounting for things like buying component parts and growing its digital software marketplace. According to Apple’s press release, just $75 billion of that total number will come from capital expenditures, new investments in manufacturing, and its repatriation tax payment, which could imply that the rest of the number is simply the effects of a company as large as Apple having its regular impact on the US economy through its normal growth and spending.
Trump name-checked Apple and its investments in his 2018 State of the Union address. Cook has met with Trump in the White House and done public events with Ivanka Trump. He also sits on a workforce policy advisory board to the president.
When Trump mistakenly called Cook “Tim Apple” at a White House event in March, the executive winked back at Trump and changed his Twitter name Tim and the Apple logo to get in on the joke.
Stock buybacks are getting an increasing amount of scrutiny
Companies buying back their stocks has come under increasing scrutiny in recent years, especially as the trend has seemingly exploded. From 2007 through 2016, S&P 500 companies distributed $4.2 trillion to shareholders through buybacks and an additional $2.8 trillion through dividends, totaling $7 trillion in shareholder payouts. And 2018 was a record year: Companies repurchased more than $1 trillion of their own shares last year.
There are some points in favor of a stock buyback. Proponents note that the moves are putting money back into the economy, and they often lead to a rise in stock prices, which can have a marginally positive effect on consumer confidence and consumption. And maybe a company’s shares really are cheap, and the company has nothing better to do with its money to buy back stock. But, of course, how often that’s the case is questionable.
Executives and corporate insiders — generally, directors and senior officers — are major beneficiaries of stock buybacks because they take advantage of them to sell shares with which they are rewarded as part of their compensation. Politico reported last year that a review of Securities and Exchange Commission filings showed that there was an uptick in executives selling shares after the tax bill was passed and buyback activity was on the rise.
The increased attention on stock buybacks in the public eye has translated to more chatter on Capitol Hill about reining them in. Sen. Bernie Sanders (I-VT) and Senate Minority Leader Chuck Schumer earlier this year engaged in a public push against stock buybacks and laid out a plan to make companies reward their workers — by paying them more, giving them better benefits, and funding their pensions — before they can buy back shares.
Sen. Tammy Baldwin (D-WI) has for quite some time taken an interest in stock buybacks. She’s written letters to former SEC Chair Mary Jo White and current Chair Jay Clayton asking them to take a look at buyback rules; in March 2018, she introduced the Reward Work Act, which would make stock buybacks more transparent by requiring they be conducted through tender offers, through which a company would offer to purchase shares. The idea is that it would be more transparent. Sens. Elizabeth Warren (D-MA), Brian Schatz (D-HI), and Kirsten Gillibrand (D-NY) signed on as co-sponsors of the bill.
Sens. Cory Booker (D-NJ) and Bob Casey (D-PA) also introduced the Worker Dividend Act, which would require companies buying their own shares to pay out to their own employees too. Booker told Vox’s Matt Yglesias that he sees the bill as a “commonsense move to address a variety of ills.”
And it’s not just Democrats who are looking skeptically at buybacks — some Republicans are as well. Sen. Marco Rubio (R-FL) in February proposed taxing stock buybacks more aggressively while extending a provision in the 2017 tax bill that allows companies to immediately and fully deduct the cost of new investments. It would, theoretically, get companies to invest more instead of spending on buybacks. Rubio’s idea was also to try to fix some of the optics around the bill helping corporations more than it did average people.
The optics of the tax cut bill are a 2020 issue for Republicans — many Americans don’t think they got a tax cut at all, even though most of them did. But Apple’s new $75 billion buyback announcement doesn’t make the legislation look any better.
Recode and Vox have joined forces to uncover and explain how our digital world is changing — and changing us. Subscribe to Recode podcasts to hear Kara Swisher and Peter Kafka lead the tough conversations the technology industry needs today.