Two senior Senate Democrats have proposed a 2% excise tax on corporate stock buybacks, the newest revenue idea for the party’s $3.5 trillion budget plan.
Sens. Sherrod Brown of Ohio and Ron Wyden of Oregon unveiled the Stock Buyback Accountability Act on Friday, targeting a practice that returns cash to shareholders without generally requiring taxes. The tax would spare buybacks funding worker pensions or employee stock ownership plans, and companies could not deduct its cost from their income.
The math is sizable. Goldman Sachs analysts estimated US companies are on track to repurchase about $800 billion of their own stock this year, meaning the levy could bring in roughly $16 billion annually. S&P Dow Jones Indices put S&P 500 buybacks at about $505 billion in 2020, projected to reach $651 billion in 2021, and corporations did a record $806 billion in 2018 after the Trump tax cuts, some 30% above the previous record.
Wyden, who chairs the Senate Finance Committee, framed the bill as fairness: “Stock buybacks are currently heavily favored by the tax code, despite their skewed benefits for the very top and potential for insider game-playing. Our bill simply ends this preferential treatment and encourages mega-corporations to invest in their workers.” He tied the buyback boom to the tax savings companies banked under Donald Trump’s Tax Cuts and Jobs Act of 2017.
Brown reached further back. “A few decades ago, a majority of Wall Street capital funded the real economy,” he said, pointing to wages, machinery, research and new construction; today, he argued, the money flows back to wealthy executives as buybacks and “only about 15 percent goes to the real economy.” He added: “Instead of spending billions buying back stocks and handing out CEO bonuses, it’s past time Wall Street paid its fair share and reinvested more of that capital into the workers and communities who make those profits possible.”
Critics pushed back fast. Erica York, an economist at the Tax Foundation, cited evidence that companies generally buy back shares only after meeting debt obligations and exhausting investment opportunities. “If lawmakers are truly concerned about instances of corporate short-termism, research indicates they should look at the root causes, such as executive pay structure or quarterly earnings reporting, not stock buybacks in general,” she wrote, adding that buybacks “do not displace productive investments and do not come at the expense of workers.” Harvard Business Review authors warned that buybacks drain liquidity that could help a company survive a downturn, and that “Taking on debt to finance buybacks, however, is bad management, given that no revenue-generating investments are made that can allow the company to pay off the debt.”
The buyback tax is one plank in a wider hunt for revenue, alongside proposed levies on derivatives and hedge fund profits and increases on corporations and the ultra-wealthy. The budget bill relies on reconciliation, needing only 51 votes, but that still means holding moderates Joe Manchin and Kyrsten Sinema; Manchin, citing inflation worries, has capped his support at $2 trillion in new spending if it is fully offset.
Sources
- Democrats Propose 2% Tax On Stock Buybacks To Offset Their $3.5 Trillion Budget Plan
- Senate Democrats Unveil Bill to Tax Stock Buybacks | NTD
