Senator Ron Wyden (D.OR) poses questions to a panel consisting of CEOs from pharmaceutical companies during a hearing by the Senate Finance Committee entitled "Drug Pricing in America: a Prescription for Change, Section II" on February 26, 2019, in Washington, DC. A panel of CEOs from pharmaceutical companies gave testimony to the committee about the reasons for increasing prescription drug prices. Photo by Win McNamee/Getty Images
A tax on stock buybacks by corporations could be used to fund a portion of the $3.5 trillion spending plan for Democrats.
Senators Ron Wyden, Sherrod Brown and Sherrod Brown proposed Friday a 2% tax for stock buybacks.
The Stock Buyback Accountability Act is expected to raise over $100 billion in the next ten years.
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Senators Ron Wyden, Sherrod Brown and Sherrod Brown propose a tax on stock buybacks by corporations to fund a portion of the $3.5 trillion spending plan for Democrats.
Senior Senators Wyden, Brown and others unveiled Friday the Stock Buyback Accountability Act. This would impose a 2 percent tax on share repurchases. According to Brown's aide, the tax could raise more $100 billion in the next decade.
Senator Brown stated that Wall Street should reinvest in workers, and not spend billions driving up stock prices to make it look good for their bottom lines.
Stock buybacks can be seen as a type of financial engineering. They allow companies to increase their earnings per share results, even if revenues are flat or down. It also reduces the outstanding shares. Stock buybacks can be used to motivate CEOs to reach their compensation goals if they have their EPS results tied to them.
After the 2017 tax cut passed by former President Donald Trump, stock buybacks have been criticized to new heights. Many businesses that had saved money on taxes used a large portion of their savings to buy more stock and not invest it in their employees.
Stock buybacks are seen by others as an efficient way to return capital. It increases the ownership of a company without tax consequences. This is in contrast to dividend payments, which are often subject to ordinary income tax. Warren Buffett, Berkshire Hathaway CEO, has preferred stock buybacks to dividend payments in order for the company to make full use of its cash pile.
Corporate stock buybacks soared to over $700 billion in 2019, and JPMorgan predicts that $1 trillion could be made in stock buybacks within the next year.
