Extending the CHIPS program conditions on stock buybacks to all firms receiving federal contracts, subsidies, and grants should be a no-brainer.
The Biden administration is giving companies a leg up in the competition for new subsidies for U.S. semiconductor manufacturing if they agree to forgo all stock buybacks for five years. The reasoning? These CHIPS program subsidies, explained Commerce Secretary Gina Raimondo, “should be used to expand in America, to out-innovate the rest of the world. Invest in R&D and your workforce, not in buybacks.” Wielding the power of the public purse against buybacks makes total sense.
And yet in the past two years, S&P 500 corporations spent record annual sums repurchasing their own stock—$922.7 billion in 2022 and $881.7 billion in 2021. In the first half of 2023, share repurchases were down a bit but still an eye-popping $390.5 billion. What’s the goal of all these buybacks? This financial maneuver artificially inflates the value of a company’s share price by reducing the supply on the open market. That keeps shareholders happy.
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