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Just found out why my 401k 'grows' while my paycheck doesn't move
Okay I need to get this off my chest because it's been bugging me for weeks.
You know how everyone keeps saying "just invest in your 401k, let compound interest work for you"? Yeah, about that. I went down a rabbit hole on stock buybacks and now I'm just... mad, honestly.
So here's the thing nobody really explains to you. When a company makes money, it has options. Pay people more. Build something new. Buy better equipment. Or, and this is apparently the favorite, just buy its own stock back off the market. That's it. That's the whole move. No new product, no raises, nothing gets built. The company just hands cash to whoever's selling shares and the stock price goes up because there's less of it floating around.
And get this, before 1982 this was basically illegal. Like, the SEC looked at this and said "yeah this smells like manipulation," and companies mostly stayed away from it. Then the rules got loosened and it just... became normal. And after 2017 when corporations got that big tax cut, buybacks went absolutely insane. We're talking $519 billion in 2017, jumping to $806 billion the very next year. By 2022 it hit over a trillion dollars. In one year. For comparison, actual dividends paid to shareholders that same year? $550 billion. So buybacks alone were almost double the money going to dividends.
Congress looked at this and said okay we'll tax it, 1%, that'll fix it. And I laughed when I found out the real number, that tax is expected to raise $74 billion total over ten years. Ten years. Companies blow past that in a single year of buybacks like it's nothing. It was never going to slow anything down and I genuinely don't know who thought it would.
And then late last year, the Treasury quietly narrowed the rules even more so certain corporate restructuring doesn't even get touched by the tax.
I don't know why this gets to me so much but it does. If you've got a 401k or index fund, this is literally where a chunk of that "growth" is coming from, not new jobs, not new factories, not raises for the people actually doing the work. Just stock price go up. Meanwhile wages sit flat and everyone's told to be grateful the market's doing well.
Anyway. Rant over. Just felt like someone needed to say it out loud.
source
Okay I need to get this off my chest because it's been bugging me for weeks.
You know how everyone keeps saying "just invest in your 401k, let compound interest work for you"? Yeah, about that. I went down a rabbit hole on stock buybacks and now I'm just... mad, honestly.
So here's the thing nobody really explains to you. When a company makes money, it has options. Pay people more. Build something new. Buy better equipment. Or, and this is apparently the favorite, just buy its own stock back off the market. That's it. That's the whole move. No new product, no raises, nothing gets built. The company just hands cash to whoever's selling shares and the stock price goes up because there's less of it floating around.
And get this, before 1982 this was basically illegal. Like, the SEC looked at this and said "yeah this smells like manipulation," and companies mostly stayed away from it. Then the rules got loosened and it just... became normal. And after 2017 when corporations got that big tax cut, buybacks went absolutely insane. We're talking $519 billion in 2017, jumping to $806 billion the very next year. By 2022 it hit over a trillion dollars. In one year. For comparison, actual dividends paid to shareholders that same year? $550 billion. So buybacks alone were almost double the money going to dividends.
Congress looked at this and said okay we'll tax it, 1%, that'll fix it. And I laughed when I found out the real number, that tax is expected to raise $74 billion total over ten years. Ten years. Companies blow past that in a single year of buybacks like it's nothing. It was never going to slow anything down and I genuinely don't know who thought it would.
And then late last year, the Treasury quietly narrowed the rules even more so certain corporate restructuring doesn't even get touched by the tax.
I don't know why this gets to me so much but it does. If you've got a 401k or index fund, this is literally where a chunk of that "growth" is coming from, not new jobs, not new factories, not raises for the people actually doing the work. Just stock price go up. Meanwhile wages sit flat and everyone's told to be grateful the market's doing well.
Anyway. Rant over. Just felt like someone needed to say it out loud.
source
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