Senate Democrats are eyeing a new tax on stock buybacks
WASHINGTON — Senate Democrats are coalescing around imposing a new tax on corporations that buy back their stocks to boost share prices and tightening rules around business partnerships that have allowed rich companies to shield profits from taxation.
The plans, likely to be included in the Senate’s far-reaching budget bill to offset some of its $3.5 trillion in social policy spending, show how far Democrats are willing to go in using tax policy to reshape business behavior. Democrats say the tax changes would bring in about $270 billion over 10 years, while pushing companies to invest more in their workers and their businesses.
Cash-rich companies such as Apple, Jpmorgan Chase, Exxon Mobil and Pfizer spend billions of dollars each year to buy back, then retire, shares in their own companies, a practice that can help drive up the company’s stock price. That has been lucrative not only for shareholders but for corporate executives whose compensation is often tightly tied to their company’s stock performance.
Proponents of former President Donald Trump’s corporate tax cut legislation promised that companies would use the windfall to boost worker wages and grow their businesses and the economy. Instead, it touched off an explosion of stock buybacks that critics say has made top executives and industry insiders even more wealthy. In 2019, the largest U.S. companies spent a record $728 billion on stock buybacks, a
55 percent increase from 2018, according to Senate Finance Committee data.
Democratic Sens. Sherrod Brown of Ohio and Ron Wyden or Oregon, the Finance Committee chair, are proposing to tax the amount companies spend on such buybacks at 2 percent — enough, they say, to bring in revenue while making companies price in the financial risk and distortions that large-scale buybacks can pose to the economy.
“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,” Brown said in a statement Friday.
The Finance Committee is also
leaning toward changing the rules that large business partnerships have used to avoid taxation and evade IRS audits.
Defenders of buybacks say there is little evidence to suggest that companies would invest more if they spent less buying their own shares. Instead, they might just sit on huge amounts of cash.