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Chip Firms Poised to Rake In Taxpayer Subsidies Spend Big on Stock Buybacks
Companies in line to receive CHIPS Act subsidies spent a combined $41 billion on share repurchases between 2019 and 2023, a new report shows.
Jul 11, 2024
An analysis published Thursday estimates that semiconductor firms positioned to receive billions of dollars in taxpayer subsidies thanks to a 2022 U.S. law have spent big on investor-enriching stock buybacks in recent years, a finding that amplified calls for meaningful restrictions on companies benefiting from public money.
The new report released by the Institute for Policy Studies (IPS) shows that between 2019 and 2023, the first 11 corporations to reach preliminary CHIPS and Science Act agreements with the U.S. Department of Commerce collectively poured more than $41 billion into stock buybacks—a sum that would have been enough to finance a $27,541 raise for 300,000 employees annually for five years.
Intel, the company set to receive more CHIPS Act money than any other semiconductor firm, spent the most on buybacks: a staggering $30.2 billion between 2019 and 2023.
"We found no evidence that any of the companies with preliminary agreements have publicly committed to suspend their existing share repurchase plans—or to refrain from authorizing new plans—during the grant period," reads the report. "In fact, when members of Congress asked BAE Systems executives if the firm would commit to pausing stock buybacks or to not engage in future ones while receiving a taxpayer-funded CHIPS grant, they declined to answer."
The Biden White House, which worked hard to get the CHIPS Act across the finish line in 2022, has insisted that the law contains "strong guardrails" to prevent the misuse of taxpayer money, including on share repurchases.
But Sarah Anderson of IPS and Natalia Renta of the Americans for Financial Reform Education Fund, the co-authors of the new report, noted Thursday that the statute only prohibits CHIPS Act subsidy recipients from spending the taxpayer money directly on buybacks.
"Since money is fungible, this is not a strong guardrail," the pair argued.
"Congress passed the CHIPS and Science Act and President Biden signed it into law to bolster semiconductor manufacturing in the U.S.—not to waste public dollars on stock buybacks."
Critics of stock buybacks and sky-high executive compensation warned prior to the CHIPS Act's passage that the measure would amount to large-scale corporate welfare unless lawmakers placed serious constraints on how companies could spend the money.
Sen. Bernie Sanders (I-Vt.) tried unsuccessfully to attach an amendment to the measure that would have barred subsidy recipients from buying back their own stock, outsourcing jobs, or attempting to sabotage unionization efforts.
A little over a month after President Joe Biden signed the CHIPS Act into law, a group of Democratic legislators warned U.S. Commerce Secretary Gina Raimondo that while the statute "specifically prohibits the use of CHIPS funds for stock buybacks and dividend payments, these restrictions do not explicitly prohibit award recipients from using CHIPS funds to free up their own funds, which they can then use for those purposes."
The new IPS report notes that four semiconductor firms that have reached CHIPS Act agreements with the Biden administration have "board-approved share repurchase plans that would allow an additional $14.3 billion in buyback spending," with Intel accounting for more than half of that total.
The analysis also found that annual CEO compensation between 2019 and 2023 averaged close to $14 million at firms in line for CHIPS Act funding, while median pay at the companies was $73,046.
"Congress passed the CHIPS and Science Act and President Biden signed it into law to bolster semiconductor manufacturing in the U.S.—not to waste public dollars on stock buybacks that make rich executives richer and exacerbate economic and racial inequality," said Renta, senior policy counsel for corporate governance and power at the Americans for Financial Reform Education Fund.
"Commerce Secretary Raimondo must finalize CHIPS contracts with strong stock buyback restrictions to make sure public money serves the public good, as intended, not narrow, private interests," Renta added.
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Intel Brags of $152 Billion in Stock Buybacks Over Last 35 Years. So Why Does It Need an $8 Billion Subsidy?
What’s to stop the chip-making giant from shoveling taxpayer grants into more stock buybacks?
Mar 27, 2024
Intel, the largest chip maker in America, with 2023 revenues of $54 billion, has just been awarded an $8.5 billion grant from the federal CHIPS and Science Act, plus $11 billion in favorable loans.
In addition to badly needed microchips, Intel produces totally useless stock buybacks. On its website the company proudly proclaims to have spent $152 billion on stock buybacks since 1990. That’s not a typo: $152,000,000,000. Which is why I call it "Stock Buybacks Я Us."
Intel took $152 billion of its revenues, some portion of which could have been used for R&D and building new microchip facilities in the U.S. as well as paying workers more, and instead funneled it to its largest Wall Street stockholders and corporate executives, enriching the top fraction of the top one percent.
A company repurchasing its own shares sees earnings per share rise because there are fewer shares in circulation. Share prices rise, though nothing new is made, and the largest stockholders, including top Intel executives, cash out with eye-popping profits. Intel CEO Pat Gelsinger hauled in $179 million in 2021, most of it coming from stock-related compensation.
How can you tell if such a large company is using CHIPS money or other money to conduct its buybacks? You can’t.
Stock buybacks are a form of stock manipulation, which is why they were outlawed by the Securities and Exchange Commission after the Great Depression, up until deregulation in 1982, that limited buybacks to two percent of profits. Now it’s all the buybacks your corporation can eat, with nearly 70 percent of all corporate profits going to this form of stock manipulation.
So, why are we giving Intel another $8 billion?
National security is at risk, we are told. Semi-conductors are far too important to our defense and to our economy to be produced overseas, especially in or anywhere near China, our communist enemy de jure. If we don’t bribe Intel to build here, the argument goes, they just might go elsewhere. They are in business to produce profits (and stock buybacks) not national security.
But the biggest selling point, as always, from politicians of both parties, is Jobs! Jobs! Jobs! The White House calculates that Intel will generate 20,000 temporary construction jobs and 10,000 more permanent manufacturing jobs because of this grant.
But what’s to stop Intel from shoveling taxpayer grants into more stock buybacks?
Not much. Senator Chris Van Hollen (D-Md.) writes:
“While the legislation specifically prohibits the use of CHIPS funds for stock buybacks and dividend payments, these restrictions do not explicitly prohibit award recipients from using CHIPS funds to free up their own funds, which they can then use for those purposes.”
Senator Elizabeth Warren (D-Mass.) is already worried that BAE Systems, a much smaller CHIPS recipient, but also a buyback recidivist, has not said it would refrain from stock buybacks for the duration of its CHIPS money.
Intel hasn’t made that pledge either. In fact, Intel’s website states it still has authorization to conduct another $7.24 billion in stock buybacks.
How can you tell if such a large company is using CHIPS money or other money to conduct its buybacks? You can’t.
Doesn’t the CHIPS Act prohibit Intel from conducting mass layoffs?
Not a chance.
Intel could very well increase jobs in some locations while cutting jobs in other locations. And there is evidence that they are doing that right now.
As the CHIPS Act was moving through Congress in 2022, strongly lobbied for by CEO Gelsinger, Intel laid off approximately 2,000 employees in California. Now, the company says, it “is working to accelerate its strategy while reducing costs through multiple initiatives, including some business and function-specific workforce reductions in areas across the company."
What that word salad means is that by the time Intel creates 10,000 new manufacturing jobs, it will have laid off more workers than that. And they know there’s nothing the government will do about it.
Why are most politicians so gutless about preventing mass layoffs?
That’s a longer story that I cover in Wall Street’s War on Workers. Simply put, our political system refuses to acknowledge that mass layoffs are the ruination of working people.
By the time Intel creates 10,000 new manufacturing jobs, it will have laid off more workers than that. And they know there’s nothing the government will do about it.
More than 30 million working people have suffered through mass layoffs since 1996. Last year there were more than 260,000 jobs lost in the highly prosperous tech sector, with another 50,000 so far this year. In January 2024, there were 82,000 layoffs across the economy. Many of those workers will suffer greatly both from financial loss and deterioration of their health. (For those worried about the catastrophic impact of artificial intelligence, the Challenger Report claims AI killed only 381 jobs in January 2024.)
It should be a no-brainer for the government to make a simple regulation:
If you are supping at the taxpayer trough, you can’t conduct compulsory layoffs of taxpayers. All your layoffs must be voluntary. That is, you have to buy workers out. No forced layoffs!
Most elected leaders believe that regulating corporations about how they can and can’t destroy jobs is blasphemy, an attack on sacred capitalist freedoms, something that only the Communists would do! In addition to the ideological blowback, the political establishment actually buys the corporate line that halting mass layoffs would make corporations uncompetitive, which is total nonsense.
Here’s a telling piece of evidence.
In 2021, Siemens Energy, the German-based company with 90,000 employees globally, decided to stop making equipment used in oil extraction and fracking. In Germany, 3,000 workers were to lose their jobs, and another 1,700 in the U.S.
In Germany, companies must live within a legislated system of codetermination, meaning that half the seats on a company’s board of directors are held by worker representatives, and labor-management committees run the day-to-day operations of each facility. (As an aside, this system was urged upon German businesses by the U.S. after WWII, because we believed unionized workers were less likely than their bosses to cozy up to fascists.)
The political establishment actually buys the corporate line that halting mass layoffs would make corporations uncompetitive, which is total nonsense.
In Germany, the workers used their power to persuade Siemens management to agree to no forced layoffs. On top of that, Siemens agreed not to shut down six facilities and instead put other production lines in them.
In the United States? All 1,700 workers lost their jobs AND the president of Siemens USA was invited to the infrastructure bill signing ceremony. In honor of the legislation she had the gall to say, “This is a historic moment in America – one that sets the stage for decarbonizing the economy, boosting U.S. manufacturing, creating jobs, and increasing equity.”
Moral of the story: In addition to fabricating hypocritical public statements, global corporations have incredible flexibility and resources to modify production, employment, wages, and working conditions. “No forced layoffs” would not put Siemens or Intel or any other global corporation out of business. Instead, there might be a microscopic dip in stock buybacks!
Every single company that is getting a CHIPS grant has the capacity to modify its operations to avoid forced layoffs, just as Siemens has done in Germany. In fact, every company that gets a federal contract should agree to do the same, as well as forswearing stock buybacks.
There’s only one way out of this non-stop shakedown: expand labor unions and build a powerful mass movement.
The second moral of the story: Wall Street and corporate America are so accustomed to getting their way that they will only pursue national goals when they are bribed. No matter how rich, no matter how large their stock buyback scams, they want our tax dollars with no strings attached. And very few politicians have the nerve to resist.
There’s only one way out of this non-stop shakedown: expand labor unions and build a powerful mass movement. Until we, the people, rise up and demand it, no one will derail the Wall Street gravy train that runs from our pockets to theirs via stock buybacks and pink slips.
And we wonder why so many Americans think the system is rigged and that democracy isn’t working for us.
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