The 4th Man that Did The Most Damage to US By Legalizing Stock Buy Backs
His name was John Shad and it was Ronald Reagan who appointed him to be the SEC Chairman from May 1981 to June 1987, the longest tenure in SEC history. This one man is responsible for allowing the practice of stock buy backs which were illegal until 1982. John Shad changed the rules governing this practice and made it legal.
So how does the CEOs benefit from stock buy backs? Basically its another way of spending the profit generated by the company. Instead of raising worker wages or reinvesting into the company with new locations, they simply use the profit to buy back the stock thus raising its value since there are now less stocks in circulation for the public to buy. The CEO that gets paid in stocks instead of a wage which is taxed therefor raises in value making them even more money.
1. Increase in Stock Price = CEO Gains
Buybacks reduce the number of shares outstanding, which typically boosts the stock price (all else being equal). Since many CEOs are compensated in stock or stock options, this:
Increases the value of the CCEO’s holdings
Helps them hit performance-based targets (e.g., EPS growth, total shareholder return)
Example: If a company buys back 10% of its stock and earnings stay the same, EPS rises, making the company appear more profitable—even if nothing changed operationally.
2. Helps Hit Earnings-Per-Share (EPS) Targets
Buybacks artificially inflate EPS by reducing the share count, not by growing actual profits. Many CEO bonuses and stock grants are tied to EPS growth targets.
Boosting EPS through buybacks is often quicker and easier than growing revenue or cutting costs.
Harvard Business Review (2014): Over 50% of S&P 500 CEO pay plans include EPS-based incentives.
3. Create Opportunities for Strategic Selling
CEOs often time personal stock sales around buybacks:
Academic studies show executives are more likely to sell their shares shortly after a buyback is announced or executed.
Even though Rule 10b5-1 is supposed to prevent this kind of insider advantage, enforcement has been weak.
SEC Commissioner Robert Jackson (2018) found that half of buyback announcements are followed by executive stock sales within days.
4. Avoids Taxation Compared to Dividends
Buybacks return capital to shareholders without triggering income taxes, unlike dividends.
For CEOs who are major shareholders, this is a more tax-efficient way to extract value.
Also allows more control over when to sell and realize gains.
As you can clearly see this was not a good idea since when the corporate tax rate gets lowered, companies can now spend the money on stock buy backs instead of taxes thus inflating the stock’s value of what it should originally be. This is how the system got “rigged” for the ultra wealthy here in the United States. Do you remember when Ronald Reagan made this speech about “turning the bull loose?” Stock buy backs were the gates holding back the bull.
So when ever there is a corporate tax cut like the one Trump did in 2017 from 35 to 21% he thought companies will do “the right thing” and pay their workers more now that they have their tax cut right? Wrong! They put the tax savings into buying back stock instead.
Here is a great explanation for how this Trump tax cut in 2017 had no restrictions on what companies could do with the tax savings. Trump was so stupid in doing this he even admitted to his stupidity on camera. His excuse was that he didn’t know that companies would do the “wrong thing” and use the tax savings to buy their stock instead, what a complete moron:
Sadly there are STILL NO RESTICTIONS on stock buy backs in 2025 with the Big Beautiful Bill which keeps the corporate tax rate at 21%. So Trump still has not learned his lesson on this shitty rigging practice of screwing over the American worker and enriching the CEOs at the top! Most Americans don’t realize that lowering the corporate tax rate when there are already a large amount of tax loopholes for companies is not a good thing to do. In fact if companies paid their fair shar of tax, we could eliminate the federal income tax for individuals all together!