Dive Brief:
- President Joseph Biden used his State of the Union speech on Tuesday night to push for a quadrupling of the new 1% tax on corporate stock buybacks.
- The proposed increase will encourage corporations to make long-term investments, while still allowing them to see a "considerable profit," Biden said.
- The new 1% tax was enacted as part of the Inflation Reduction Act last year and became effective Jan. 1. "Let’s finish the job and close the loopholes that allow the very wealthy to avoid paying their taxes," Biden said.
Dive Insight:
Stock buybacks — an alternative to dividends — remove shares from the market and enable a company to increase its share price and earnings per share and offset dilution when executives exercise stock options.
The new tax generally applies to any U.S. corporation whose stock is traded on an established securities market and that repurchases more than $1 million of stock over the course of a tax year.
A company that repurchases stock can avoid paying the 1% excise tax if it pledges, in a single year, to fund at the same value an employee stock ownership plan, pension plan or similar arrangement.
Buybacks have drawn fire from lawmakers who say the strategy enriches shareholders and executives while failing to improve the quality of businesses or their goods and services.
“Big corporations should never pay less in taxes than middle class families,” Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking, Housing and Urban Affairs Committee, said in an emailed statement responding to Biden’s speech. “With the Inflation Reduction Act, we took first steps to make sure corporations and Wall Street pay more of their fair share, but there is more work to do.”
During the month of January, announced buybacks more than tripled to $131.5 billion compared with the same period in 2022 — a record for the start of a year, according to data compiled by Birinyi Associates. Chevron Corp. had the largest announcement for the month, with a value of $75 billion.
Editor’s note: CFO Dive’s Jim Tyson contributed to this story.
