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Should a defense contractor get to enrich shareholders with stock buybacks while it’s behind schedule on taxpayer-funded government contracts?
The House will debate exactly that question this week as lawmakers consider an amendment to the annual defense bill that would prohibit certain Pentagon contractors from buying back their own stock if they are failing to meet production and delivery requirements. The idea is simple: if taxpayers are paying you to build missiles, ships, and fighter jets, maybe build the missiles, ships, and fighter jets before rewarding Wall Street.
Enter the lobbyists. America’s weapons makers have deployed their most powerful weapon yet: their lobbyists, sent to kill the bill before it can reach the battlefield. The U.S. Chamber of Commerce, Business Roundtable, and major defense industry groups are urging lawmakers to kill the proposal, arguing that it amounts to the federal government dictating how private companies allocate their capital.
But this isn’t some radical new concept. The federal government has long attached conditions to taxpayer money. Banks that accepted TARP bailout funds after the 2008 financial crisis faced restrictions on executive compensation, dividends, and stock buybacks. Utilities and financial institutions are often subject to capital and reserve requirements before they can return money to shareholders. Companies that want federal dollars routinely accept strings attached.
This proposal would simply add another condition for a narrow class of companies: if you’re relying on taxpayer-funded defense contracts, you shouldn’t be enriching shareholders while you’re behind on the weapons, ships, or aircraft those taxpayers already paid for. Under the proposal, contractors would generally be prohibited from buying back stock or paying dividends unless they meet government performance standards or receive a waiver from the Secretary of War.
The coalition behind this proposal are a motley crew. President Trump issued an executive order with this mandate in January and the Senate approved the language a few weeks ago. The current amendment has support from Democratic Senators Elizabeth Warren, Josh Hawley, and Mike Lee.
Congress has a simple choice: side with the taxpayers who paid for the weapons, or the lobbyists paid to protect the profits.