BUYBACK PAYBACK

Wall St. hails Dems’ bill, but stox tax still looms

Wall Street is breathing a sigh of relief over the Senate’s version of the Inflation Reduction Act, but experts warn a last-minute provision to tax stock buybacks could come back to haunt investors.

By some measures, the $740 billion energy and health care spending bill has been radically defanged from an earlier version, which had been expected to cost The Street more than $800 billion.

Most notably, the amended version fails to crack down on the “carried-interest loophole,” a giveaway to privateequity and hedge-fund titans that treats their income as investment gains.

A proposal to shrink the loophole would have raised $14 billion over 10 years. Closing it altogether would have generated at least $180 billion over 10 years, according to one analysis from 2015.

Firms spared

In a lesser-noticed move early Sunday, lawmakers also dropped a provision that would have imposed a minimum tax of 15% on private equity-owned corporations making less than $1 billion in yearly profits — the end result of which is expected to save private equity-owned companies an additional $35 billion over a decade.

Sen. Kyrsten Sinema (D-Ariz.), who has received at least $2.2 million since 2017 from private-equity firms and their employees, proposed the tax on stock buybacks in exchange for dropping the carried-interest loophole.

But tax experts warn that a new tax on stock buybacks could turn into a “gateway drug” to tax all kinds of financial transactions. The new levy could bring in $70 billion to $124 billion, according to preliminary estimates.

While the 1% excise is nominal for now, it could easily be increased down the line, tax experts tell The Post.

“Wall Street was so focused on lobbying against the corporate minimum tax and the global intangible tax, they basically conceded the stock buyback tax,” said James Lucier, managing director at the Washington-based policy-research firm Capital Alpha.

“It is a question of buy now, pay later. The excise tax on stock buybacks could become a problem for M&A, and it sets the precedent for other financial-transactions taxes that could be a problem in future years.”

In the short term, that tax, which will take effect in 2023, could accelerate buybacks.

“We could see billions in buybacks accelerated before year-end,” said Thomas Hayes of Great Hill Capital. “We could wind up the year at much higher levels than most would have thought just a few weeks ago.”

Moneymakers

Other revenue sources will come from a 15% corporate minimum tax — a move that is aimed at Big Tech companies like Amazon and a slew of other multinational corporations and could bring in around $313 billion, according to one Senate estimate.

A crackdown on the cost of prescription-drug prices is expected to dent drugmakers while saving taxpayers an estimated $288 billion on Medicare spending.

Additional funding for the IRS is expected to bring in $124 billion by going after businesses underreporting taxable income, but the measure is expected to disproportionately target small-business owners.