Stock Buybacks: Misunderstanding Fuels Bad Tax Policy

Adam N. MichelTuesday night President Bidenproposed a fourfold increase to the recently passed 1% tax on stock buybacks. The existing excise tax went into effect barely a month ago and taxpayers are still facing uncertainty over how the existing tax will be implemented.The original buyback excise tax was included in theInflation Reduction Act of 2022, went into effect at the beginning of 2023, and is estimated toraise about $74 billion over ten years. The tax is still being implemented by the IRS and a recent Congressional Research Servicereport notes that “a number of repurchase issues still need clarification.” One of thoseclarifications came only after investors took nearly $750 million in unnecessary losses in an attempt to account for the new tax going into effect.The tax applies to the total value of stock repurchases, lowering investor ’s after‐​tax return on the affected investments, and likely inducing firms torely more heavily on dividend payments. The President and many in Congress support the tax for reasons rooted in an economic misunderstanding of stock buybacks.Since the 1980s, when the Securities and Exchange Commission eased some related rules, there have been periodic political panics over stock buybacks. The common concern is that when businesses repurchase shares, executives choose to pay out to investors instead of reinvesting in workers, capital improvement, or new research and development. This view misunderstands the economics ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs