U.S. corporate profits abound, but for most Americans prosperity can’t be found. Open-market repurchases, aka stock buybacks, are central to the problem. For 2004-2013, 454 companies in the S&P 500 Index expended 51% of their profits, or $3.4 trillion, on repurchases, on top of 35% of profits on dividends. Of profits not distributed to shareholders, a big chunk was parked overseas, under a tax loophole that encourages U.S. companies not to invest at home. The real bottom line: corporate profits are high, but corporate reinvestment is low. Yet business investment in productive capabilities is the foundation of sustainable prosperity.
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