This submission broke HN's rules by editorializing the title. Doing that eventually causes your account to lose submission privileges on HN, so please don't do that.
"Please use the original title, unless it is misleading or linkbait; don't editorialize."
Cherry-picking a detail from an article and making that the title is editorializing—in fact it's the leading form of editorializing. Titles are by far the biggest influence on threads, so this is a big deal. On HN, being the first to submit an article doesn't confer any special rights to frame it for everybody else.
To be honest, I wouldn't have opened the topic if the original title (Denmark Extends Business Aid to Increase Spending By $15 Billion) was used as this was somewhat uninteresting overall, "that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs" was the more interesting piece of information I might have otherwise skipped.
The answer to this is that the baitier title can help bootstrap an article onto the front page and that's not always bad. Once it's on the front page, that's enough of an indication that there might be something interesting about the article, so it's not going to damage it as much to restore the title. I tend not to include this point in top-level public comments because subtleties like this make the explanation too complicated.
I say "not always bad" but in the present case I do think it was bad, because there really isn't much of interest in the article. Even though the cherry-picked point was the more interesting detail, it only got a single sentence. That's not enough to support a non-generic discussion (https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...).
That's not a stupid question, it's an excellent and subtle point. In your example, one of those two is much less baity than the other, so that one is preferred.
What the rule means by "original title" can be any one of the candidate titles that an article itself provides. That can be the main heading on the page, but often that is misleading or baity, especially with media sites. The HTML doc title, as you point out, is often a good alternative [1]. Often a subtitle is better than the main title. Other good candidates can be the URL, a photo caption, or a phrase from the opening paragraph.
When the original title is misleading or linkbait, HN's rule says to change it. In such cases it's far better to replace it with representative language from the article itself [2] than to make up one's own language for it. On HN the principle is to let the content speak for itself, so we try wherever possible to avoid putting words in an article's mouth. When undoing the dirty work of a headline writer [3], put the author back in charge. Don't knock headline person off their perch in order to grab it yourself.
When the obvious options for a good title all fail, you can nearly always find one in the text itself. In fact, it's strikingly rare for media articles not to include, somewhere on the page, an accurate and neutral phrase that says what the article is actually about. I wonder if this is not coincidence, or good writing, so much as SEO. In other words, the very same forces that make headline writers churn out bait to entice users may be driving authors or editors to include accurate summaries to bait search engines. Your mission, should you choose to accept it, is to hunt for the latter to replace the former.
In cases where none of the options for a title produces a good one, including scouring the article body, it's ok to make up a title as a last resort—again, using representative words from the article itself as much as possible.
Yes, this was my reasoning. The most interesting thing of the article was the explanation why some companies wouldn't be eligible for aid - the fact that Denmark offers more aid isn't interesting, countries do that all the time now. However, excluding companies which use tax havens or pay out dividends is new.
Besides, editorializing is expressing an opinion, which is not something this title is doing - or am I seeing this wrong?
Ex post facto. We can't know that until after the discussion has happened--ergo, avoiding editorialization allows community interest to happen more naturally.
The proposal only limits payments to companies that have received more than DKK 60 million (around EUR 8 million) in aid. So this is not your usual business owner. These are generally larger companies with a well paid management.
It's a short list and it doesn't include any countries where a large company doing business in Denmark would be registered except if they try to avoid taxes. Why should tax payers bail out a tax avoiding company?
The proposal was made by a party in the opposition, which is usually seen as most business friendly ("Venstre"). Interest groups representing the businesses in Denmark support the proposal. I think it's a common sense proposal. Paying out dividends to shareholders while receiving government aid basically means having the tax payers bail out the business owners.
I honestly think the proposal should go even further. The government should take a small ownership stake in companies that receive that kind of money.
> Why should tax payers bail out a tax avoiding company?
I think that depends on our answer to the prior question, "Why should tax payers bail out any company?" If the answer is "because we like them and we feel a patriotic/moral/righteous duty to help them", then the distinction between tax-paying and tax-avoiding companies does seem relevant. But if the answer is "to help workers keep their jobs", then the distinction might not be relevant.
> "because we like them and we feel a patriotic/moral/righteous duty to help them"
Sounds like an abusive relationship. Again, if a company wants to be bailed out by the tax payer, I don't think it's a stretch to ask that they pay taxes.
Otherwise it's like me, a foreigner with no connection to Denmark other than that I've 'helped the economy' when I went on vacation there last year asking for a bailout.
> But if the answer is "to help workers keep their jobs", then the distinction might not be relevant.
In many European countries, social safety nets exist so you don't have to reward cancerous businesses for terrible business practices, while still ensuring individuals are looked after in the event things go sideways.
Just replying to myself, I was incredulous that cruise lines were requesting a bailout from the US taxpayer. They've been registering their ships in Panama, the BVI and Liberia to avoid minimum wage law, labor laws and paying taxes. They make staff work 8-20 hours a day 7 days a week for months on end, paying well below market wages. [1]
Need a bailout? Ask the Liberians.
Similarly, these companies should be asking for bailouts from the tax havens in which they are registered. Surely all those "registration fees" they've been paying to avoid taxes are being kept safely for just such an occasion.
None of this is making me feel super patriotic/moral/righteous duty for them.
> In many European countries, social safety nets exist
They only exist because they are funded by taxing economic activity. If governments could just will them into being without restriction than every country in the world could have European level social safety nets.
If economic activity declines, so does the money faucet funding the social safety nets.
The government has unilateral ability to invent jobs and even invent money if the goal is to help workers keep their jobs and/or remain fed and housed. So I feel that no company should get a bailout. If they fail, they fail, and the government can scoop up the workers and create an agency or just government-staked company that does the same thing, find some work in the country that needs doing and put the workers on it, or stipend the workers until they find a new job.
Of course, that means the failed company's executive board has to also find a way to actually add value...
The government can invent jobs, but it can't invent infinite jobs that accomplish something that people want, and even when it can the task won't generally be accomplished as efficiently as a private company would. It's also very difficult to remove a government agency once one is created. Government has all kinds of incentive problems that private companies don't, so generally (IMO) it's best to only use government to accomplish a task that the private sector does very poorly because of some market failure.
There's also a large cost to having people reallocate from one job to another, and from having businesses go under. There's physical capital that needs to be reallocated and "organizational" capital (not sure the right word, but I mean the way the business is organized) that may be permanently lost.
For historic reasons states have built systems that prevent normal governments from inventing money at scale: Independent Central Banks. It's of course an important ongoing debate in economics whether this is still appropriate, but it's unrealistic to expect governments to so dramatically alter the fundamental structure of monetary policy. That said, of course it's even more unrealistic to expect them to do so absent a massive external shock.
> For historic reasons states have built systems that prevent normal governments from inventing money at scale: Independent Central Banks.
Could you explain this? I think the CB system does not quite prevent money creation, it just makes it less transparent. Inventing a jargon to nice sounding words to hide the creation of money (yes I look at you "quantative easing") also does not help.
If govts wanted to limit their power to create money, they could have made some constitutional law or smth.
I feel the CB system is more an invention by the bank(er)s, than by govts. If you look at the timing and trickery involved in singing the CBs into law all over the world, you will see this is not something done with full governmental/public awareness and consent. To the contrary.
It's about people being able to trust their currency. Let me explain: suppose that your government was creating a huge amount of money out of nothing. It would result in a massive inflation and, with the value of money being completely unstable, people would resort to alternative ways of paying for thing: a more stable foreign currency, gold, crypto currencies, or even barter. You can see it happening in countries with a massive inflation (Zimbabwe, or Argentina in the early 2000's are the examples that are on top of my mind). So, this is a scenario the governments have to avoid at all cost, and in theory they should create just enough money so the inflation matches the growth of the country.
However, the growth of the country is very hard to measure (directly taking the growth of the GDP would not necessarily match it), so there is no consensus on what the inflation should be exactly, which gives the authority in charge of creating money some leeway on exactly how much money to create. If this authority was the government, it would be tempting to have the inflation be slightly higher than the country's growth, in order to "trick" people into believing that they got slightly richer and have them spend more. And this could work for some time, but at some point people would become wary of the government and as a result would spend less, slowing down the economy. So it becomes a game (in the sense of game theory) between the government and the consumers, and the solution is to have an independent entity in charge of money creation, so people can know with more certainty that the "right" amount of money is being created.
I think it's the other way around. CB create money as compared to governments, and they are rather insulated from pressure to create money in normal times. The point being to limit the danger of runaway inflation if governments decide to print money arbitrarily. BUT I am very very far from being an expert or even terribly well read on any of this.
It seems to me it would be a lot more useful if we create money and the government spends it (e.g. on infrastructure, or by distributing it directly to people most likely to spend it), rather than indirectly creating it through QE (which in mechanism, if not in effect seems quite different from printing money), etc.
QE still is recognized as a liability on the balance sheet and funds have to be raised and repaid via treasury bonds. That’s actually quite a long ways away from arbitrary printing.
The government can’t invent jobs that bring in more revenue than they cost though. If everyone does unsustainable jobs with printed money, you’ll have hyperinflation and then collapse.
> If they fail, they fail, and the government can scoop up the workers
This is a government forced failure. That’s a great way to turn every small business owner (a huge part of the middle class) against the pandemic containment efforts and the government in general.
Because a private medical researcher has to actually be funded. In other words, the expected value of the researcher is in excess of the researcher’s cost.
Nobody pays medical researchers without expecting an ROI unless it’s for a charity (in which case it’s funded by other excess value in the economy).
There isn’t really a meaningful difference between the government spending $100 to get $2 of value and spending $100 to get $0 of value. If we’re going down the unsustainable jobs path, it would be much easier to just pay everyone $80k/year to do nothing.
I think "to help workers keep their jobs" is not a good enough reason. I might be wrong but to me the main beneficiaries of companies staying open are not regular workers, but the owners / CEOs / shareholders.
The best way to disincentive tax avoidance would be to not allow it in the first place. A one-off policy like this punishes tax avoidance without necessarily discouraging it in the future. It depends on how likely businesses think it is for something like this to happen again.
I think there is a lot of lobbying for tax avoidance. But maybe that's just my perception of govts using democracy as a banner while in reality policy is much more influenced by lobby effort than voters sentiment.
I'm sure you're right. Lobbying for tax avoidance is a classic example of rent-seeking. I'm just trying to point out that this is an empty gesture from the government. It makes people feel good but it doesn't really prevent tax avoidance in the future. If that was the goal, there's a much more direct way to do it.
That could be the real answer, for sure. Or the aggregate answer, maybe, in the sense of "we need to do X, but can't do too much of Y, because then voters will notice and get angry." In that case, it might not be a deliberate choice at all, just the reality of politics in a democracy.
If it was a deliberate choice, my instinct would be that designing one policy with a dual mandate sounds a lot more complicated and less effective than designing two policies. It's a lot simpler to target a bailout to saving jobs only, say, and then separately change the tax code to disincentivize tax havens. That would also separate the part that needs to be done urgently, from the part we could do whenever.
> this sets up a relationship where now the company can use the employee's employment as a form of hostage.
Well, at least in this occasion there is an external factor at play. So the hostage situation is not premeditated as much as when a company uses the hostages as leverage when negotiating tax break.
That's just semantics. Whether you see it as a reward for some or a punishment for others is besides the point. The argument is about companies getting treated unequally with no just cause.
To spoonerize a colonial slogan, No representation without taxation.
Is there just cause to use tax money to help companies who have not paid taxes? Is that fair to the companies who put their money in that pot, to have it doled out to those who didn't? Should companies be treated equally, when they don't behave equally? Because I'm unconvinced that countries owe tax-dodgers a dime. I think that their employees, being taxpayers, should have a safety net in case their employers neither pay taxes nor save for a rainy day. Let this be a lesson to the executives and let their ventures fail.
The point I'm trying to drive at is that bailouts are not a reward. If they were a reward, we wouldn't wait until emergencies to issue them. Rather, they're an emergency response, and in that sense they should really be optimized for effectively addressing the emergency, regardless of what feels fair.
It's not that. The issue is that companies have figured out that ups and downs happen, so if they sail close enough to the wind they capture the upside while their limited liability and bailouts protect them from the downside. Privatize profit, socialize risk. The people they are placing that risk onto are not obliged to accept it.
Bailouts are there to create incentives for the future. In the future companies know they can save money by going to tax haven but potentially not get a bailout.
Who gets aid, and how is the amount calculated? It's somewhat surprising that foreign company would be eligible at all.
Also, I'm skeptical of "common sense rules" being effectively implementable.
Company A1 owns intellectual property like trademarks and patents, registered in a tax haven. Company A2 manufactures & markets products in the consumer country. A2 could be paying licence fees to A1. A1 could be contracting A2 to do manufacturing and marketing. Either way, the idea is that A2 never makes profits. Any profits are made in A1, which also has no expenses.
This is/was Google & Apple's structure, with Ireland as the tax haven.
This is a simple example. Reality is usually more complex. It is generally hard/impossible to pick these knots apart. IDK of any country with corporate tax rules/enforcement that has picked it apart. Lots have tried. How did denmark do this.
If you think at all about why a company was registered in a tax haven to begin with, then it's clear that they shouldn't even be in a line to get bailouts from "foreign entities" (from the point of view of the company) at all.
If a company wants to be eligible for benefits inside a country, they have to follow all the laws.
No ifs, buts, ands.
If you feel that the company is "doing good work" why not ask them to be registered in the country to begin with? OR better - move headquarters into the country being discussed (or have that be a condition for receiving bailout funds).
All this said, I think it's up to the government of the Tax Havens themselves to support these companies. These tax havens derive significant benefit from being used in this way. It's time for the tax haven to step up and provide funding for support during this challenging time.
That is only a very small part of why companies incorporate in tax havens.
Extradition policies, consumer protection laws, intellectual property status (ie whether you can use a tax haven incorporation to shield yourself from patent lawsuits or even to use it to hoard patents so you can use it as a base for launching law suits on others, forcing them to come to court in the tax haven jurisdiction for disputes)
There are so many things tax havens are used for. And that is why incorporating inside of the country where they are trying to get bailouts from is so important, otherwise the tax payer's money will be used against their own interests, with no way of enforcement.
Tax haven registered companies are the Nigerian Prince's of the corporate world. It is very possible they might be legit (and some very legit businesses are tax haven registered), but the very fact that they registered there on purpose is very telling in itself. Telling you they can swindle you with or without your consent.
> Why should tax payers bail out a tax avoiding company?
Tax avoidance also tends to be on profits. A lot of companies in the US have done corporate inversions, but they're still paying local payroll, property, and sales taxes. Freezing dividends and buybacks punishes the people who benefited from the tax avoidance, but you have to be careful not to do this at the expense of workers.
The other argument, and this is from a US perspective, is you're pushing 20% unemployment, why are you wasting your time promoting your political passion project? Spend the money, ask questions later.
I think the response would be that most of these governments* are not spending the money to keep the businesses open - they're spending it to keep employees solvent. To accomplish that, not all businesses need to be saved.
*The USA is an obvious exception where for at least a substantial group of people, the purpose is to keep the businesses intact. They really couldn't care less about the employees.
There are 30.2 million small businesses in the US, which comprise a whopping 99.9% of all United States businesses and make up for the lion's share of employment. This is very different from Europe.
By bailing out the small business owners, you have a better chance at maintaining employment or for employment to re-emerge after a crisis.
Small business ownership is also a huge source of middle class wealth here in the US. Bailing out small business is essentially bailing out 30 million owner/employers and preserving their middle class wealth.
Obviously big businesses get bailouts here as well, and I happen to agree that if they use money for buy backs, dividends, etc. they should not get stimulus money.
Those stats are a little misleading. Only 18% of employees work at businesses with fewer than 20 employees. And of course most businesses are smaller - it's a lot easier to spend an afternoon filling out "LLC in a box" forms than it is to create a "large" business!
Well I would include larger private companies in that group, you could have 100 employees and still be a small business - for example you could own a small chain of restaurants or franchises, or several hair salons.
But yes really small businesses employ about a fifth of the population.
Those “hamster wheels” are the reason we get to eat, have internet, have shelter with heat/AC. It’s gonna get pretty miserable if we just pay everyone to stay home and do nothing.
> Why is the goal to maintain employment? Seems like the government wants to keep people on their little hamster wheels.
Well, common sense seems to suggest that we would want to have an operational economy again at some point. That generally requires there to be jobs available to people.
What is the alternative to "their little hamster wheels", exactly?
A recipient of USA PPP money (our business disaster relief fund) who does not spend it on payroll will have a loan that is due in 18 months. If you spend on payroll (and there are rules to prevent abuse) most of PPP will be forgiven. The USA is clearly trying to keep employees solvent, and as a USA based business owner, I care deeply about my employees, and so do most other business owners I know.
The USA has the self-inflicted problem that we need to keep a maximal number of corporations intact in order to keep employees solvent because US healthcare is unfortunately primarily "employer managed".
> The government should take a small ownership stake in companies that receive that kind of money.
I'm only familiar with US law, not Danish so question for you here.
Under US law, when a company closes (bankruptcy, acquired, etc), the common shareholders are last in line for payments after debt holders and preferred shareholders. Does Danish law have a similar provision?
If so, wouldn't being a debtor be a stronger position? Especially since the governments get to set repayment terms.
Yes, if we look at the bankruptcy scenario only (and provided the debt is not secured). But the shareholder is typically better off if there is an upside. What we saw in the last financial crisis is that large corporations quickly paid off their loans and the government - the taxpayers - missed out on the upside.
The natural way to give government ownership would be through convertibles so they could chose whether to convert.
I totally agree with you, especially the last point. Not only that, any company that has an excessive amount of cash or cash-like securities (e.g. Apple) should not receive state-aid. Of course Apple is not asking but it's just an example. We should further limit the salary of management once they receive aid.
and English Channel islands, London, Luxembourg, for some purposes Netherlands and so on. Heck, even Denmark is often rated as tax haven because of certain advantages [1]
These days dividends are less popular than share buybacks (in part because the former is taxed as income and the latter as deferred capital gains taxed at the time of sale).
I hope politicians weren't sufficiently stupid as to close one avenue and leave the other wide open.
I strongly doubt it. The corporate tax provisions are stricter than most developed economies. All indexes I've seen have Denmark pretty far down tax haven friendliness. Genuinely curious on your source.
That was apparently misused by a relatively small companies abroad, where passing profits through this company would keep the information from the right authorities. Not really sure what happened with the case, new rulesets were applied to combat potential abuse.
Another high profile case was the "Danish Bank" (not to be confused with the national Bank of Denmark) which was involved in some huge money laundering in Estonia, potentially allowing as much as 200 billion EUR pass through it without asking too many questions.
Thank you. I was aware of the money laundering. What Danske Bank did is under investigation for being illegal under 'hvidvaskloven'. Let's see how that goes, but the company and its directors are expected to face consequences.
That case has nothing to do with a 'tax haven', unless a pattern is formed and the authorities turn a blind eye.
I didn't know about the Kommanditselskab company form. It does appear to have been abused, but I can see this is something the tax authorities are on the case with.
How possible it is to act as a tax have and how friendly a country is to be used like that is a spectrum. The Tax Justice Network report you linked puts Denmark very low on that ranking and tiny (their word) in volume.
That's not what I am talking about though. I am talking about the zero tax rate for holdning companies. it's an active strategy by the Danish government.
It's probably because you're calling Denmark a tax haven without providing any documentation? Denmark is not recognised as a tax haven by any country (that I'm aware of). I'm willing to learn something new, but you are not providing any support for your statements.
That doesn't mean you should assume I don't know the difference between Denmark and Holland.
Tax haven is not an official title for any country or place but a definition and Denmark is by definition a tax haven for holdning companies.
Just because it's not well known doesn't mean it's not a tax haven. That word is quite ambiguous. Most countries have some sort of setup to attract foreign investments.
"Back in 1999, Denmark allowed Danish companies to hold shares in foreign subsidiaries. In 2009, the Danish government enacted the Danish Tax Reform Act allowing international corporate investors to use Denmark as a holding company jurisdiction. The 2009 Danish Tax Reform law improved Danish participation exemptions applied to dividends and capital gains realized on the transfer of shares by abolishing the holding periods of one year and three years respectively.
Another benefit is the ability to receive dividend payments subject to little or no taxes. Other tax haven jurisdictions often do not provide such benefits. The condition for a no tax status on dividends is that an entity owns at least 25% of the Danish company.
PepsiCo and other large international companies have established over 500 Danish holding companies over the past few years. PepsiCo Investments, the PepsiCo Danish Holding Company, is managed from a small Copenhagen office by one tax lawyer. Such international demand created a dynamic holding company industry in Denmark.
In essence, Denmark allows the registration of completely tax-free holding companies. Dutch holding companies can receive income from numerous different sources and simply pass them to other corporations in different countries. This is why holding companies are globally famous for their tax free funds “pass through” capabilities."
And then you go on to provide me a source that calls Denmark Dutch multiple times... Måske du lige skulle læse det igennem du copy-paster?
Tax havens are places that are recognised as such. It's not any country with a tax loophole. There are plenty of lists of tax havens and Denmark is not on those lists. That, of course, doesn't make Denmark immune to having tax loopholes, but it's just a bad premise for any discussion to volunteer your own special definition that contradicts most of the facts out there.
If these companies aren't allowed to pay a dividend until they have paid back the government aid, isn't the government effectively taking an ownership stake?
No it's not. The government won't own any shares that benefit from an increase in share price, nor will they receive dividends. The government can only receive the government aid back. It works as a forgivable loan. Loan-holders almost always come before equity-holders, and they could require full payment before dividends to equity holders.
Ideally, as grandparent notes, yes. But no, there's an obvious way out: Instead of paying dividends, reinvest would-be outgoing cash back into the company. On the phone, claim to follow the Amazon playbook. In addition to not having to give up anything to the government, the company might find itself improving!
So, companies acting completely legally by seeking to minimize their tax burden, which serves to further maximize the money available for their owners, get penalized. Likewise, companies acting completely ethically, by returning much of their profit to their shareholders via dividends instead of hoarding it themselves get penalized. And this gets celebrated?
I think you'll find a lot of people do not agree with your definition of "penalized". Not giving something to someone who was never entitled to it is not penalizing.
> So, companies acting completely legally by seeking to minimize their tax burden, which serves to further maximize the money available for their owners, get penalized
It's fairly simple. If you don't want to pay the government, the government doesn't want to pay you. Just as you are acting legally in tax avoidance, they are acting legally in not bailing you out.
> Likewise, companies acting completely ethically, by returning much of their profit to their shareholders via dividends instead of hoarding it themselves get penalized.
This did strike me as strange, but there are several interpretations. As an example, if you're doing well enough to be paying dividends, you don't need to be bailed out.
Responding to "you'll find a lot of people do not agree with your definition of penalized" with your preferred definition of the word doesn't exactly further the conversation.
> Penalizing all companies and then only bailing out some is picking winners and losers.
Without going into the semantics of the word, I will point out that yes, that is the role of the government. They provide incentives for certain behaviors, and lack of incentives (or even disincentives) for others.
It's a good common sense start. Companies that pay dividends or make share buy-backs are more vulnerable in a crisis (not only the current one), meaning they are riskier investments. Risk needs to be inversely correlated with reward for the markets to function. Investors in riskier companies deserve to get wiped out, not propped up.
Companies registered in tax-havens should have no business applying for EU or US aid. I would say, simply barring them doesn't go far enough. If one did apply while being simultaneously registered in the EU/US and any tax haven, that is fraud and should result in jail time.
The notion that we should be encouraging corporations to hoard money is crazy. We have enough problems with them doing that as it is, because executives already have a perverse incentive to retain earnings for pet projects and wasteful empire building, and there are a bunch of dumb tax rules that already allow taxes to be avoided as long as the money isn't repatriated and paid out to shareholders, which makes the shareholders prefer to collect interest on the before-tax amount in an offshore account inside the corporation rather than the after-tax amount in their own domestic account.
Corporations don't need to hoard money because viable businesses can always raise more. The exception is unforeseen systemic problems like this, but even they aren't really exceptions, the issue then is that everybody needs to borrow money at once and there aren't enough creditors which requires a policy change to make a sufficient amount of credit available.
> there are a bunch of dumb tax rules that already allow taxes to be avoided as long as the money isn't repatriated
I think that was just in the US; but the Trump tax changes got rid of global taxes on US companies, payable on repatriation and replaced it with essentially a minimum tax on global income, payable immediately, but credited by foreign taxes paid; plus a different rate on US income.
IIRC, the global minimum rate is about 10%, and the US rate is about 20%, and there's probably some progressivity, so those are the top marginal rates, but this isn't tax advice.
I don't think we disagree? Just disagreeing that there are two types of public companies, "those that do or will pay dividends" and "those that don't" since the latter group doesn't actually exist.
> All public companies are anticipated to pay dividends or buy-back at some point in time, it's what underlies stock pricing.
I don't know the specifics of the Danish case, but in other places, they're not saying you should never do these things - only that you don't do it for a fixed period of time if you want bailout money.
> Companies that pay dividends or make share buy-backs are more vulnerable in a crisis (not only the current one), meaning they are riskier investments.
You present that as a statement of fact; but it's not at all clear to me why that should be true. Can you give your thinking on that?
A company may not be paying a dividend because it's reinvesting; or because it's unable to do so because it's making a loss.
Do you think Facebook (no dividends; almost completely dependent on advertising budgets) is a less vulnerable, less risky investment than AT&T (regularly pays substantial dividend)?
Companies that intentionally run with razor-thin balance sheets and don't have any buffers built in to withstand shocks, are more fragile than companies with some buffer, all other things being equal.
If the company chooses to pay out said buffer as dividends, it's to the benefit of shareholders. That's completely fine, market working as intended! But they shouldn't then be able to turn around and get state aid because the lack of said buffer now makes their company non-viable, at least not without restrictions like the Danes are imposing (no future dividends). To do otherwise incentivizes creating these fragile bufferless companies, and puts companies that do have a buffer at a competitive disadvantage.
What Denmark is doing, is saying you can get some aid to help your company, but going forward you must pay us (the society who supports you) back before you pay your investors. Unfortunately the dividend restriction period is capped at two years, while it should really be for an indefinite time.
> Companies that intentionally run with razor-thin balance sheets and don't have any buffers built in to withstands shocks, are more fragile than companies with some buffer, all other things being equal.
That's true; but it's not at all the statement you made originally, is it? Do you actually have some data that suggests that dividend-paying companies are more likely to be run as you described?
Contrary example: AAPL in its Q1 2020 filing reported ~$200bn of cash, equivalents and marketable securities on hand. AAPL also pays a dividend.
Moreover: it's absolutely not to the benefit of shareholders to have a company fail just in order to pay a dividend (unless the dividend yield is something ridiculous); shareholders are often interested in a combination of growth and yield, and the value of the stock going to zero as the company fails is a bad outcome.
In fact, companies that pay a dividend by definition have a buffer. They can chose not to pay a dividend.
That was however the intent of the statement: Companies that pay dividends or make share buy-backs are more vulnerable in a crisis [compared to otherwise identical companies who build a cash buffer].
I disagree that companies that pay a dividend by definition have a buffer. If the income plummets (like in non-essential retail at the moment), they have no hypothetical dividend buffer to fall back on, that if not paid out would keep them in business.
> That was however the intent of the statement: Companies that pay dividends or make share buy-backs are more vulnerable in a crisis [compared to otherwise identical companies who build a cash buffer].
That's a false dichotomy though.
Option three is what, for example, most of the profitable/zero-dividend tech firms do - which is to reinvest to boost market share, perform research and development and enter new businesses instead of returning a dividend to shareholders.
No dividends; but no cash pile either. Under your theory, those companies are no better equipped to deal with a crisis.
The stock value can still rise. Apple didn't pay dividends for a large part of its existence, yet especially after the year 2000 it would have been a great stock to own.
> Apple's long stretch of not paying any dividends reflected Jobs' opposition to them. During Jobs' second tenure at Apple from 1997 to 2012, the tech giant didn't pay a single dividend, even as its cash hoard ballooned to over $50 billion in 2011.
"The cash in the bank gives us tremendous security and flexibility," Jobs said in 2010.
But by 2012, and after Jobs had passed the reigns to Tim Cook, Apple finally reinitiated its dividend, making it the company's first dividend since 1995. The combination of Jobs' passing in 2011 and a cash hoard exceeding $100 billion in 2012 marked the beginning of a new era for Apple. Overnight, Apple became a formidable dividend stock -- and it looks like it's going to stay this way.
And the underlying economic reason for Apple's shares to go up when it wasn't paying a dividend is that as Apple accumulated cash and became more profitable, the chances that it would pay a fat dividend someday (even if not in the near future) kept going up.
If companies didn't ever pay a dividend or buyback shares, the whole thing would be a ponzi scheme. The company takes money in an IPO, and then investors shuffle money among themselves to make it look like they have a profit, but it would collapse if people want to cash out. When companies eventually distribute profit to investors however, it becomes possible for cash to leave the system without all the paper value disappearing into thin air.
Berkshire Hathaway has only paid 1 dividend ever (in 1967). Buffett can invest that money better than I can, so why bother taking money out of the company.
I cannot for the life of me understand why’d someone who’s not an institutional investor (say Buffet) would want to own stock in a company that doesn’t pay dividends. It’s basically buying a vanity plate and hoping someone else will buy it for more down the road.
I've had this question in the past and I found this post helpful:
> The fundamental answer to all of this is that the profits must be shared with shareholders at some point. This is what terminates the infinite regression. If a company believes that they can retain their earned profits to further grow and generate even more profits, they will do so. However if a company continues to grow and do well, eventually they will accumulate so much cash in the bank that they can’t find good use for all of it. At this point they will have to pay it out to shareholders through a dividend or stock buyback. If they refuse to, at some point the shareholders will band together and vote for new management that will pay it out.
So even if the company does not pay dividends currently (reinvesting it instead), there will eventually come a point at which their growth flatlines, and they will start paying out dividends. If the market is rational, it will have forecasted this flatlining and the stock price will have taken that into account.
I used to have some trouble with this one but if you think about it it's the same as "why would anyone want a dollar, it's just a piece of paper". The answer is that for literally anything, if you can exchange the thing for value, then it effectively has that value.
(Or alternatively, you say that dollars are also vanity plates, and are as worthless as stocks.)
Exactly. So, give breaks to companies that cannot pay dividends, because the ones that do are the ones who are obviously signaling that they are fine.
This isn't some slam against paying dividends, though. I do agree with you. I am fascinated at companies like Snapchat whose shares command no voting power and do not pay a dividend.
However, as far as signals go, "here, we are so well capitalized that we think you can invest this money better than we can" is pretty strongly saying your company is in good financial shape.
Commodities and precious metals don't pay dividends, yet people invest in them with the expectation that the value will rise so they can sell them later.
Do you know a priori that none of these companies will ever pay dividends or buy back?
So many facile understandings of pricing in these comments - there is a real mechanism that ties profits to pricing, it's not just "sell when it goes up"
2. Give people work, so that they can afford products.
Especially essential ones.
Everything else is just (potentially useful) junk capitalism added on top of it. So even if the concept
of dividends would be forbidden many thinks would still go on like before, companies would still exist and make sense. Just the stock marked would probably be gone. Maybe that wouldn't be so bad IMHO.
Maybe I'm not understanding something but why do they consider paying dividends as something bad? They are essentially excluding the majority of businesses using this criteria.
There's a lot of misinformation about this out there.
The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid.
This is so that aid is not redirected into the pockets of shareholders and is instead used to keep people employed.
>The Government and all parties to the Parliament agree that the extended and extended fixed cost scheme introduces a condition in the Compensation Orders that applicants, as a condition of receiving compensation for the extended period, must declare by faith and laws, that the companies will not pay dividends or buy back shares for the financial years 2020 and 2021. The condition will apply to companies that receive more than DKK 60 million. in compensation in 2020 in the compensation scheme for fixed costs. Companies will later be able to free themselves from these restrictions by repaying paid aid under this scheme in excess of DKK 60 million.
TARP in the US worked exactly the same way with the banks, BTW. Banks which took TARP money had their dividends reduced to a penny per share maximum until the money was repaid. Here you can see that for Bank of America, it took until 2014(!) for their dividend to go above that:
So why don't these conditions apply to all the aid, not just the aid after 8.8 million dollars?
Otherwise it seems ripe for my company to claim 7 million dollars of aid as unsecured loans, then pay out nice big dividends claiming you are in a strong financial position because you are forecasting lots of business next year, then in 2 years time when the loan repayments become due, go bankrupt.
I don't know if Denmark has similar laws but here in the US there are a lot of family businesses that have many family members who aren't officially on payroll. They're not doing anything shady because there are lots of exceptions to underage labor and minimum wage laws for family businesses. The businesses pay the owners (one member from each household usually) dividends who then distribute to the rest of the family. Many of these businesses are run by large families with strong ties with each other and their communities who act as their own social safety net. Many of them are also immigrants with a disaster mentality so they are the ones most likely to have a large nest egg for hard times. Excluding them from the loans because of their capital structure would be disastrous.
I think the $8.8 million is too high out of an abundance of caution but I can see the reasoning.
The implication is that companies should not be using the aid money to pay dividends or buy back stock, because the aid is intended to help pay employees or otherwise remain operational, not to pass through to stockholders.
The article doesn't make clear whether they're using past behavior (what they did with previous government aid), present behavior (are they currently a public company established as paying dividends), or future behavior (an agreement not to pay dividends or buy back stock, in order to receive aid).
If a company goes “Omg, we won’t make it this year, we need 2 billions in aid just to keep going with business as usual, not even takeing our normal 10% growth into account!?” then the government will still not pay a dime to that company if their “business as usual” includes 15 billion buy backs.
The point is that companies need to take the hit on their owners and shareholders pockets first, and only then if they still need aid to survive, then the government steps in.
I think of it more as somebody trying to hold a raft together, spread-eagled on the deck hanging onto the mast, the tiller, the log decking, hoping the storm passes and it all hasn't broken up yet.
It sounds like you may be assuming the dividend is required, like a debt. It isn't. A company can stop paying its dividend at any time, so Denmark isn't excluding any company. Investors will grumble when the dividend stops, but so what? The taxpayers are grumbling too.
Of course some banks have recently argued that their dividends are something like debts. They argue that cutting the dividend would cause investors to panic, so they must be essential to the financial system. This is a weird argument, but if you took it seriously you would have to include dividends in their post-2008 stress tests. You would require regulatory approval before they increased the dividend, as you would if they increased their debt-to-asset ratio.
Dept payments before dividends is just a one way for a lender to secure their loans in limited companies.
It counters "Heads I win, Tails you lose" -strategy where the risk of business is offloaded to lenders while owners take profits. It's common tactic in distressed companies to load the company them with debt and suck the firm try with huge dividends. Lenders are left with nothing when the company goes bankrupt.
It's probably a bit more nuanced than that. Dividends are often scheduled months in advance, based on (for instance) last year's profits. Having made a profit last year, and having promised a dividend months before corona doesn't mean you won't be struggling now.
So, the business then has the choice to use last year's profits to keep the business afloat or pay investors. Seems like an easy choice unless your only motivation is lining investor pockets.
I've never once met a person who would otherwise go hungry if they didn't get dividends, have you?
What you really mean is those "normal people" would have to sell their third car or maybe rent out their summer home without that dividend, which is just fine by me.
I know a bunch of retirees who live modestly off of dividend income, couldn’t afford a significant cut and couldn’t easily return to work. I don’t think you have broad enough experience to assume no one earns a few thousand a month from dividends and needs most of it to help pay bills.
Indeed. The fallacy that all investors are all fat cats, swimming in money is pretty galling. When interest rates on savings accounts dropped, many regular folks took some of their savings and put into dividend paying companies. I'm sure most of them are aware that this is an investment and isn't without risk. I'm certainly not advocating for companies to pay out dividends no matter what. But the lack of nuance bothers me.
Not all dividend paying companies are greedy, and not all dividend investors are wealthy.
It's actually way simpler than that: the owners of a company facing crisis have the choice between providing it with additional liquidity or putting its future (and thus their stake) at risk. This is the one core manifestation of the risk they are bearing, and for which they allegedly deserve the dividends in the first place.
Getting a dividend for last year's performance is the opposite of providing liquidity. If they get the cash because it was scheduled, they need to immediately put it back.
If they take the cash and run, they failed to act in their own interest, and do not deserve to have their investment protected.
To my knowledge, it isn't. There is a date of ownership where the dividend eligibility is determined and then it is paid out a few weeks later. I would imagine those payouts are binding but a planned dividend for June could easily be rescinded without legal penalty. However it is priced into the value of the stock. Slashing dividends will tank the stock price.
Eliminating a planned future dividend by itself would have no effect on the stock price. What would affect the stock price is the management explanation that comes along with cancelling the dividend. If they say that profits will drop even more than analysts had expected, then that would tend to cause a share price decline as it would be new information to the market.
Stock prices usually drop after a dividend is payed out because each share now represents a claim on fewer assets.
Paying a dividend is paying a person. It's like you're saying that 'as long as they can afford to keep paying employees' they don't need aid. Would you rather they stopped paying people but didn't take aid? The whole point of the aid is so they can keep going and keep paying people.
Most workers who receive majority of their income in the form of stock are in a very high income bracket and should not receive any government bailouts directly or indirectly.
> Many workers are paid a majority of their income in the form of stock from the company they work for.
A very small "many." I'd imagine that class consists mostly of highly-placed executives (who can be assumed to be rather wealthy) and some number of people playing the startup lottery.
I think at many large enterprises getting paid in stock is standard for even junior line-worker hires. Google, Microsoft, Amazon, Oracle, etc. People a few years into their career are often paid a majority in stock.
> I think at many large enterprises getting paid in stock is standard for even junior line-worker hires. Google, Microsoft, Amazon, Oracle, etc. People a few years into their career are often paid a majority in stock.
Maybe at FAANG companies (whose FTE workers tend to be very well off) and some other companies with a startup lineage, but I highly doubt this is very widespread.
I, for one, would frankly refuse a compensation package that was majority stock, unless the salary was already good. It'd be too much like those Enron employees who filled their 401ks with Enron stock -- too many eggs in one basket.
If someone who's otherwise well-compensated complains about missing out on dividends on their stock, I have the world's smallest violin here, ready to play a song for them.
You suggested paying a dividend was similar to paying employees. When throwaway2048 challenged this, you brought up stock-based compensation. Surely if such compensation (including dividends) was an obligation in the same way as wages, then the employee would have some recourse when it's interrupted. In other words, they could sue.
> Then, Like I said, its nothing like salary, which is absolutely an obligation.
But I'm never argued it was a salary or an obligation. Literally never used either of those two words. I think you're arguing against something nobody said.
It's money you'd be paying a person. It doesn't matter if it was 'like a salary' or an 'obligation' or not. What difference do you think that would make? Preventing companies paying dividends is prevent them paying people. Real people!
Not sure if these are loans or grants or exactly how it works, but I could see prohibiting dividends for some period after the aid. Firms should not be making distributions when they are receiving aid. But prohibiting any firm that has paid dividends is insane.
Dividends are, literally, the profits you're distributing to your owners. Buybacks, likewise, are giving corporate money directly to your owners (who then divest from the company in the process, of course). This isn't "bad", it's fine. It's the basic idea of how the stock market is supposed to work, we buy shares in companies we think will make money.
But by definition if you have cash to distribute to your owners, you could be using that to pay salaries instead and delay or avoid layoffs and furloughs. So it's very reasonable that a government bailout policy designed to prevent job losses (and not to shore up shareholder value) would incentivize giving money to the people who are targetted and not shareholders.
The thinking goes:
A business should have enough cash to weather a storm. If you've paid out cash you have more than enough to weather a storm (and therefore don't need money). If you need money and have paid out dividends than you shouldn't have, you didn't have enough cash reserve.
I’m Danish so I can chip in who this is targeted at. A few of our larger corporations like Danske Bank (the one from the money laundering scandals) aimed at paying out its stock owners 8,50dkr per share while simultaneously planning to fire hundreds of employees to pay for their mishaps and Covid problems. Other companies that are less evil planned similar things.
Now Danske Bank is planning on using those money to secure their business going forward, and we expect some companies to follow this route. Others will go a head with their firings, like Vestas, to make sure share holders get richer.
Now this is not something we actually want in Denmark. I know it’s capitalism, but our most recent election results showed a record support of our social democracy. We’ve never had less support for liberalism (which is our branch of capitalism) than we do now since the end of WW2. So we value people keeping their jobs above shareholders making money.
I personally think we should be even tougher on taxing the rich. If we know companies sit in tax-havens then we should really do something about that, shouldn’t we
You are correct that the vast majority of publicly traded companies do not pay dividends.
However, that is a small minority of all firms and I hope you will find it interesting to learn that many, many small firms' owners (Doctors offices, car dealers, liquor stores, carwashes, etc.) take regular compensation in the form of dividends.
Further, I will point that in the United States, if you are an "S Corp" (and millions are) you cannot, for the most part, carry over liquid cash from one year to the next. You are forced to distribute any leftover cash, typically in the form of distributions to owners (dividends).
That being said, receiving state aid on condition of suspending dividend payments makes very good sense and is the first condition I would add to such aid - you shouldn't need state aid if you are distributing profits.
Why do a majority of publicly traded companies not pay dividends? I've noticed before that for many companies by identifier (ISIN, SEDOL, CUSIP, take your pick) that there are no dividend histories.
The only example that I know the reason why is Amazon. [If you buy Amazon stock you either 1) expect dividends at some later stage or 2) plan on selling the stock for a higher price.]
Some companies 'reinvest' profits in their operations and don't pay dividends.
Others avoid dividends, as dividends are profits that are taxed twice. (Once for corporate income taxes, and again for individual income taxes.)
Selling the stock for a higher price has opportunity for favorable tax treatment at the lower long-term capital gains vs dividends taxes as regular income.
> Selling the stock for a higher price has opportunity for favorable tax treatment at the lower long-term capital gains vs dividends taxes as regular income.
Dividends are generally taxed at the long-term capital gains rate, not as ordinary income.
This makes sense to me for private or public companies where the owners are also employees or otherwise benefit. It doesn't necessarily make sense for me if you are a very small stakeholder.
I haven't read the law, but I would be surprised if it excluded the Danish equivalent of K-1. That would not make sense, it's a completely different thing.
Right, and I believe roughly half of the Russell 3000 constituents pay dividends as well. Given that the Russell 3000 represents about 98% of all U.S. equity market capitalization, is there a sense in which the statement:
> You are correct that the vast majority of publicly traded companies do not pay dividends.
My original point was that the vast majority of _companies_ don't pay dividends, not that most _public_ companies don't. I'm not sure where that came from.
Someone else made the comment that plenty of private companies pay "dividends" (e.g. USA K-1), but a cursory read of the Danish policy indicates that these private dividends are probably not affected.
You pay out dividends or buy back shares if you have surplus cash, and it's hard to convey to voters that businesses with surplus cash need help I guess.
The article lacks some details. If you read the Danish text detailing this from the Ministry of Commerce you will see that:
Regarding buy-backs and dividends, companies receiving more than 60 million DKK in subsidy for fixed costs have to promise no buy-backs and dividends in fiscal years 2020 and 2021. If they pay back the subsidy they will be freed from this obligation.
60 million DKK is approximately 8.7 million USD or 8 million EUR.
Regarding "tax havens", the legislation states that the companies receiving these subsidies have to pay their taxes according to national rules and international agreements. Companies based in EU-defined "tax havens" will not be eligible for compensation unless denying them compensation would violate EU legislation or other international agreements.
You can read the press release and legislation from the Ministry of Commerce in Danish here:
I understand the sentiment behind no aid if you're paying dividends (if you have enough money for dividends then you clearly don't need aid), but I don't see how it can be defined in any way that seems even remotely fair.
Is it whether you paid dividends recently in the past? Because remember businesses are supposed to pay dividends -- and you could have been profitable enough to pay a dividend in January but now deep in losses -- and whether they paid dividends in any particular recent timeframe can be fairly arbitrary.
And if it means being prohibited from paying dividends for a period of time going forwards, this seems similarly arbitrary -- basically any business can just pause dividends, then as soon as the time period expires, and immediately or gradually pay the previous dividends they didn't.
Coming up with any useful definition for whether a company deserves aid or not, short of whether they're actually filing for bankruptcy, is already incredibly difficult, but basing it on dividends is beyond simplistic. Different types of businesses have such wildly different patterns of savings and cash flows they're extremely hard to compare or draw any kind of line between "responsible" and "irresponsible" companies.
Based on the article, it looks like the primary form of aid is zero interest loans. It seems perfectly fair and reasonable to me that you can't pay dividends until you pay back the loan.
> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs...
Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary.
Buying back shares I’m fine with. While that could actually be seen as a form of “reinvesting”, I get the point.
What sense does the “registered in tax havens” part make though? If they’re a foreign-registered company would they ever have been eligible for aid? Plenty of companies in Europe are employing thousands of people, but are “owned” by a company elsewhere, so how do we define that ownership and “tax haven”?
> Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary.
Shareholders should not just profit from the upside, but eat the downside too, which his exactly what this is. You can't take the dividends, claiming "I took all the risks", and then expect the state to bail you out. No upside without downside. Skin in the game.
Imagine two different companies, both make the same gross profit. Company A returns profit to shareholders by issuing a dividend and buying back shares. Company B doesn't have many shareholders, so instead of using raised capital, they have borrowed debt. They return their profit to debt holders in the form of interest payment. Company B actually returns more money overall because these interest payments are tax deductible.
If the economy slows down and gross profit decreases, company A stops its dividend. Company B defaults and declares bankruptcy.
Do we really want to bailout only company B? Tax policy already pushes companies to look more like company B.
Yes, on the surface. You’re assuming that the business owner is some uber wealthy person that doesn’t mind missing the dividends because he’s happy on his yacht.
While that is true for a lot of large companies (kind of like the ones that shouldn’t be asking for state aid), for the small ones it’s very different.
As a small business owner myself, it matters hugely - if the company makes $100,000 in profit and I have to pay two employees $40k each, I’m barely making ends meet.
How does the size of the business change the material facts here? You shouldn't be able to take profit when you're sitting on top of a 0% interest government loan intended to keep you solvent.
Dividend and share buybacks are the same end result, just different mechanisms for enriching shareholders.
If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout).
These are very reasonable conditions for a nation state bailout.
This is a fair point, and I would be supportive of carving out an exemption to ensure the ownership value in retirement plans for workers is not wiped out and they’re made whole.
Gee, I don't know, I guess I'm concerned that retired people don't get their major source of living income ripped out from under them just because of an ill-conceived notion that "dividends are only for rich people".
This is implying you could keep enough cash on hand. Outside of tech giants, how many companies keep enough cash reserves to survive months without revenue?
There is a wide expanse between running your business razor thin as a profit extraction machine and keeping 12 months of cash reserves. This policy simply looks upon the former as a poor choice.
Almost no one keeps 12 months of cash reserves. Apple, with is famous cash hoard, is around that mark.... I can't think of other large companies offhand that are.
That was only used as an example as the other extreme.
Edit: Very few business have that cash on hand, but will usually have access to credit revolvers that could carry them through this. I am aware of many firms that have drawn down their entire revolver.
And I'm aware of a bunch of companies that are explicitly not drawing on their available revolvers because the banks involved are not necessarily in a position to provide that liquidity right now... This is the issue with a systemic problem that affects the entire economy, which is quite different from a single company being affected. And note that even "cash on hand" would be in practice money markets or bank accounts, which would make drawing it down look a lot like a bank run.
Now whether we should be bailing companies out, that's a separate question.
Fundamentally, if 2020Q1/Q2 GDP is effectively down 30% or whatever the number is, and we want to "replace" that loss, it's hard to see where that sort of money can come from except "all of us" in various forms (higher taxes due to government bailouts, higher prices, higher inflation, etc, etc). The main question is where the incidence of the economic pain will fall. Letting companies go out of business places that incidence partially on the shareholders and partially on the ex-employees and partially on the ex-customers. Unemployment insurance and the like can partially help the employees in the short term. The shareholders seem to get little sympathy, understandably, though note that they include things like pension funds and whatnot. Customers (who can no longer get the goods the company used to provide) may be just out of luck or other companies might at some point spring up to address the demand. In the short term they are just out of luck.
It seems to me that a lot of economic readjustment will take place no matter what, with open questions about speed and smoothness.
Perhaps this should be a cost of doing business in the future? We all pay for this anyway, so why should taxpayers face all the risk and none of the reward.
The problem then comes (regrettably) when national/regional/local government next tries to get another round of capital-intensive fixed investment form the captains of industry.
They find themselves talking to themselves for the money.
There is a middle ground between having enough cash reserves to survive for months, and not having cash at all because everything has been bled out in dividends and buybacks; namely, having enough cash reserves to survive for some time, but not for several months.
Because your competitor who ploughs all their money into growth and rewarding shareholders would crush you within a year. Everyone loves to watch their 401k go up every quarter but hates the reality of how that happens. Sort of like people who love cooking meat but are disgusted by an image of a slaughterhouse.
No, I don’t think the two are the same. Like I said, dividends are usually the “salary” an employer takes at the end of the year. It could be $1, it could be $100,000, but it all depends upon how the business did. This is exactly how everyone is constantly complaining that a business should be operating - pay all the employees, then the owner/CEO/etc. takes part of what is left over.
Depends on scale. American Airlines in the US used 80 percent of their profits for several years for share buybacks ($12.5 billion from 2010-2019). Not R&D, not salary increases for workers. Does that deserve a bailout that preserves existing ownership? That’s the target. That sort of behavior should be nuked from orbit.
I’d agree it’d be different if your business is small (less than $10M/year in turnover); you’d look at the books with a less critical eye.
Why? Where exactly is the tipping point where dividends/buybacks become unacceptable? Unless you want to completely outlaw dividends and share buybacks (in which case you might as well do away with public companies), you're inherently putting the government in the position of defining completely arbitrary rules about how profitable a company is allowed to be.
Yes, that is the role of government, deciding who does and does not get a bailout based on criteria developed by policy makers, using taxpayer funds. Bailouts are not entitlements.
A key point missing is defining that criteria in advance. If your market economy rewards buybacks heavily and you didn't know it was a moral hazard, why should your company (and its employees & shareholders) suffer? I can see banning future buybacks until the gov't loan is repaid though.
Bailouts might be necessary, but they absolutely should not be expected. And if the are needed, we should take a piece of your equity for our troubles. If you don't agree to that, which is your right as a business, make do without.
That’s the point. You are assuming that every applicant is AA size... the reality is that 99% of businesses are not, and you’re killing those business, their employees, their owners, and their families.
I don't think anyone has clarified the actual rules in play here. Why should the taxpayer bail out firms which go on to pay dividends within 5 years? Why shouldn't the state simply take stock as a guarantee for loans in these companies?
Dividends are how an company owner gets the profits from his investment. A salary is how a worker gets paid. In small companies, these may be the same person, but the nature of the financial flow does not change.
When a company requires more cash, in times of need, it can issue debt or raise capital. Capital is usually paid last, in the pecking order. If government is lending to companies, it is reasonable to require them to avoid depleting its cash reserves paying capital.
>Well first off, dividends are a normal method for business owners to make an income... they take all the risk...
Except if they did actually take all the risk, they would presumably be going bust right now...but they aren't going bust because they are being bailed out.
This is an example of "privatizing the gains and socializing the losses", the opposite of ownership risk.
Besides dividends are not the only reward of ownership, the equity/stock has a value separate from the dividend...a company taking taxpayer dollars and turning around and give x% of taxpayer bailout to owners is a direct transfer of wealth to the ownership class and just burns the cash flow the business presumably needs to attempt to survive.
I think the "in tax havens" part applies to "pay out dividends" as well. Perhaps someone who speaks Danish can refer to the official sources and confirm?
Firms applying for Danish state aid must promise not to pay dividends or make share buy-backs in 2020 and 2021. Companies would be allowed to pay dividends again if they pay back the aid.
This makes perfect sense, otherwise it's a textbook case of socializing the losses and privatizing the profit. Paying dividends (and stock buybacks) is a trade-off that companies make, that makes the company less resilient. Risk/reward needs to work in both ways, both in terms of gains as well as losses.
Agreed - repayment of the loan/bailout should be the contingency. Your business has wild post-COVID success? Great! Pay back your bailout and start issuing dividends! No moral hazard in returning capital in a successful business.
But the owners are not "taking all the risk" in this case hence the conditions attached to the Danish state acting as the last financial resort for businesses that are currently in trouble and whose owners cannot do anything about it.
> Well first off, dividends are a normal method for business owners to make an income... they take all the risk
I'd disagree strongly on that account. The business owners take the monetary risk, but that is a small portion compared to the overall risk of the workers. If somebody moves across the country, that is a risk. If somebody invests time in learning a skillset, that is a risk. If somebody is going to need to choose between rent and groceries if they are laid off, that is a far bigger risk than the monetary investment of a venture capitalist.
One rational reason is that there's a desire to preserve the state of the economy to speed the eventual recovery. Writing checks to a restaurant to keep its staff employed (but idle) vs. writing checks to the employees is the same from the perspective of the employees. But it also means the restaurant is going to fail.
Opening the doors of an idle restaurant at the end of the lockdown is a lot cheaper and more efficient than starting up an entirely new one.
A less rational reason, of course, is that the policymakers writing the bailout laws tend personally to be more affiliated with and sympathetic to business owners than employees. There is some of that too.
In addition to the other replies: it's less costly to keep businesses solvent and just have them re-open and re-hire people in the near future, than to have a huge amount of businesses collapse and then have to start everything over again.
In the USA at least, the government did write a check to individuals (below a certain annual income).
Paying for fish v.s. paying for fishing rod maintenance. The idea of the aid is to preserve the economy so it can go back to generating product not pay the rent for the next few months on individuals houses.
I hate crappy poorly thought out measures like this.
Is this a loan? If so, no dividends should be paid (or buybacks offered) until it's repaid. Otherwise companies just need to hold fire for 18m and it's free money!?
And if it is a loan, there should be interest and compulsory payments after (say) 6 months. Otherwise you're bailing out companies that SHOULD go bankrupt and penalizing ones that don't.
This is like when my country (the UK) bailed out banks. We got equity in exchange (smart). Then we decided to ban bonuses because politics. So we got sued and lost and had to pay them and legal costs. Then we said no more bonuses, so the good bankers, the ones that made a profit and who were not involved in the BS mortgage crap all moved to private banks. And we were left with hollow shells of companies we'd paid a fortune for.
I find these restrictions relatively frustrating because they push governments into an adversarial relationship with shareholders in a way that is unnecessary.
We may not like it much, but government equity purchases are a much more aligned way to pursue a bailout. World governments (and by proxy taxpayers) should be gaining ownership or preferred rights in these deals. Then shareholders could be free to do whatever ridiculous dividend / buyback policy they want. Putting time limited bans on corporate payouts doesn't fix the incentives that lead to high payout rates in the first place. Shareholders losing 80% of their equity in a bailout would.
The dividend rule is dumb. Companies who pay out dividends are actually more responsible businesses, who return capital to shareholders. Just because they generate profits doesn’t mean they are also not in need of aid to maintain operations. Certainly it makes sense to prevent them from issuing future dividends based on aid, but why a businesses ability to return profits to shareholders implies anything about their cash flows sensitivity to covid is beyond me. Not to mention, this rule will give aid to profitable companies who chose to not return those profits to shareholders, an additional bizarre distinction.
That’s not to say bailout money shouldn’t be restricted, it just seems like a dumb rule. Why not delimit it based upon a company’s behavior, such as excessive risk taking or over leverage? The companies that were not anywhere near robust to financial shocks deserve to die, but dividend issuance seems a poor way to select for these.
> Regeringen og alle Folketingets partier enige om, at der i den forlængede og udvidede ordning for faste omkostninger, indføres en betingelse i kompensations-bekendtgørelserne om, at ansøgende virksomheder som en forudsætning for at modtage kompensation i den forlængede periode på tro og love skal erklære, at virksomhederne ikke vil udbetale udbytte eller foretage aktietilbagekøb for regnskabsårene 2020 og 2021. Betingelsen vil gælde for virksomheder, der modtager mere end 60 mio. kr. i kompensation i 2020 i kompensationsordningen for faste omkostninger. Virksomheder vil senere kunne frigøre sig fra disse begrænsninger ved at tilbagebetale udbetalt støtte efter denne ordning ud over 60 mio. kr.
Isn't paying out a dividend similar to just paying employees and those who should rightfully earn an income from any enterprise? I understand the need for meaningful checks and controls here, but why would this be singled out?
I keep saying over and over but the economic policy is something trump fucked up big time. He gave away the corporate tax breaks in times of prosperity when there was no need and the companies just made bank. He was dealt a great hand, a strong economy that would chug along no matter who the president was. Those are the times to focus on the poor and lift people up. Instead he wasted his opportunity on the tax cuts. Someone with foresight and common sense would have saved that arrow in the quiver for a more opportune time. Now would have been a great time to use that tool. Instead the fed has to resort to unlimited money printing and zero interest. We probably will need to do that at some point but losing that one option is a mistake.
Similarly: I don't understand the Oregon Kicker: if there is a surplus, it is sent back to the people.
DUH! The point of a surplus is to save for emergencies! Sure, if there is more than, hm, let's use Chase bank: Six months savings, then send the rest back. But running a state with no emergency savings seems asinine, no?
Unless... maybe a state can just go way into debt immediately if they need to in case of emergency? I don't know how this works, but I'll quote Chase bank, when they berated millennials for not having 6 months savings in case of emergency.
I just learned it is illegal for many states to engage in deficit spending for emergencies:
"That’s in part because, in many cases, states are legally barred from deficit spending, which means in times of crisis, especially those producing huge budget shortfalls through collapsing tax revenue, they are functionally unable to respond at all. In such situations, the federal government is designed to serve as a backstop, but over and over again throughout this crisis, the White House has said states will get little to no help — that they are entirely on their own. (The federal medical stockpile isn’t meant for the states, as Jared Kushner has said, as though the country is anything more than its states.)"
This is why the Trump government stealing PPE supplies from states is so fucked up:
I don’t think corporate tax break would actually be a useful tool right now - corporate taxes are on profits and the profits are going to tank for most businesses.
I think the theory is if the US govt hadn't pumped the deficit on tax cuts for the profitable and rich in the good times, it would feel more free to spend it on bailouts for the vulnerable in the bad times due to less existing national debt. Although the Republican party's interest in making even the most token attempt to balance the federal budget over the economic cycle ended with the Obama presidency, so the debt's not going to be high on their list of priorities right now anyway.
corporate tax breaks weren't useful in 2017 (during a boom) either.
The forewent tax revenue now would have been useful for a larger payment protection program. Part of the cynicism and restrictions around current proposals stem from how the 2017 tax cuts excess monies were deployed (shareholder buyback and dividends, not hiring or pay raises)
Not that relevant as the shock is slump in demand. Printing more money etc makes it cheaper to buy things but people are still not buying so oil etc is in a free fall. Traditional interest rate based intervention doesn’t make sense you are just adding even more money available to a system that doesn’t want to spend it. Instead it needs to be targeted intervention that transitions the economy to the new reality and measures something different than quarterly gdp.
> Those are the times to focus on the poor and lift people up.
Which political party are we talking about here? This has never been a tenant of the modern Republican platform. They've tried to oppose every remotely reasonable education, healthcare and economic policy over the past 30 years.
You see the tax breaks as a mistake, but wealthy Republican donors got exactly what they wanted. There's no "oops" about this, it was intentional from the start. Rich bailouts for their rich friends. Not that the Dems are much better...
The point you're missing is that the tax cuts were unfunded and paid for by huge deficits. So that huge overhang will limit how much deficit spending politicians might undertake to offset any downturn. And they may need to raise corp taxes now and create even more drag.
Right - it helped out a year ago when those companies used their profits to buy back stocks, giving executives piles of money, while leaving the companies broke and in need of a bailout.
I am Danish, I think I'll manage to know the difference between the country I was born and raised in and the country were a lot of my friends are from.
He is elected to represent Denmark by Danes. He would be betraying his duty to his people if he put the interests of foreigners ahead of his own (there's a word for that, and dire consequences). It's refreshing to see.
"Please use the original title, unless it is misleading or linkbait; don't editorialize."
https://news.ycombinator.com/newsguidelines.html
Cherry-picking a detail from an article and making that the title is editorializing—in fact it's the leading form of editorializing. Titles are by far the biggest influence on threads, so this is a big deal. On HN, being the first to submit an article doesn't confer any special rights to frame it for everybody else.
If you want to say what you think is important about an article, please do so in a comment. Then your view is on a level playing field with everyone else's. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...