President Joe Biden has championed a substantial financial proposal in the latter half of his term: increasing taxes on businesses engaging in stock buybacks. This initiative aims to redirect corporate funds toward business expansion and job creation, instead of primarily benefiting executives who typically reap the rewards of such programs. However, despite its intended benefits, the proposal has encountered noteworthy resistance, even from traditionally supportive voices within the Democratic camp.
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Currently, businesses pay a 1% tax on stock buybacks, a charge created when the Democrats passed the Inflation Reduction Act in 2022. In the State of the Union in January, though, Biden pushed raising the rate to 4%. Per a Morningstar report, he specifically called out the oil industry, noting that “Big Oil … invested too little of [their] profit to increase production and keep gas prices down. Instead, they used those record profits to buy back their own stock, rewarding their CEOs and shareholders.”
Biden also notes that this tax will increase federal revenue, which is important if he wants to continue pushing for progressive domestic policy in a potential second term.
One of the voices speaking out against Biden’s plan is a billionaire who would normally be on his side: Warren Buffet, who has publicly supported the Democratic Party for some time.
“When you are told that all repurchases are harmful to shareholders or the country, or particularly beneficial to CEOs, you are listening either to an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffet wrote in a note to shareholders of his company, Berkshire Hathaway.
More likely opponents of Biden’s have also chimed in. Writing in the Wall Street Journal opinion section in February, economist Burton Malkiel claims the tax won’t hurt just CEOs but average investors.
“While direct ownership of shares isn’t common among low-income people, indirect ownership through retirement plans exists across the income distribution,” he wrote. “Most common stock is held by the mutual (and exchange-traded) fund industry and by a variety of public and private pension plans,” he writes. “These institutions usually reinvest the proceeds from buybacks, and they rely on returns from the stock market to preserve the viability of their programs.”
The Bottom Line
President Biden is keen on increasing the tax on stock buybacks from 1% to 4%. While Biden and his supporters claim this would force companies to reinvest money in their business rather than enrich executives – while also increasing federal revenue – there are critics from both sides of the aisle who are pushing back.
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