Those who thought the tax plan would lead to announcements of more hiring and investment have already been proven wrong.

In a strong hint at how a tax repatriation holiday is going to play out, Share Buybacks Announcements Spike already.

A spike in share buyback and special dividend announcements this week reveals that companies are more likely to use any money saved on an all-too-familiar item: shareholder returns.

Bank of America, Home Depot, Johnson Controls International, T-Mobile US , Ciena, and even Madison Square Garden Co. are among the companies to unveil new buyback authorizations this week, rushing in even before a final tax bill has been formulated.

“I expect a lot more announcements of rewards for shareholders,” said William Lazonick, professor of economics at the University of Massachusetts Lowell and director of the Center for Industrial Competitiveness.

Carmine DiCesare, a consultant at FactSet, said that [the 2004] holiday led to an estimated $300 billion–plus in earnings being repatriated to the U.S. However, a FactSet analysis of S&P 500 index SPX, +0.24% constituents showed that share repurchases nearly doubled to $202.7 billion in 2004 from $115 billion in 2003, while special dividends paid jumped nearly sixfold to $179.4 billion from $30.3 billion.

On the investment side, capital expenditures, which is what creates jobs and pumps money back into the economy, inched up just 3.5% to $385 billion in 2004 from $372 billion in 2003, DiCesare said.

Show of Hands


The notion that the tax plan would be a big boon to hiring and investment has already been disproved.

Mike "Mish" Shedlock

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