With the backing of President Joe Biden, Democrats in the Senate are moving to quadruple the corporate stock buyback tax following a record year for stock buybacks, which topped $1 trillion among S&P 500 companies for the first time in 2022.
On Wednesday, Senators Sherrod Brown (D-Ohio) and Ron Wyden (D-Oregon) introduced a bill that would increase the stock buyback tax from 1 percent, as passed in last year’s Inflation Reduction Act (IRA), to 4 percent. The lawmakers say that it would help cut down on tax avoidance for corporations and wealthy shareholders after the practice of stock buybacks exploded in popularity due to Republicans’ tax code overhaul in 2017.
“It is not lost on the American people that corporate profits have climbed right along with the prices that families have been paying for groceries, rent, gas and other basics over the last few years,” Wyden said in a statement about the bill. “To see big multinational corporations announcing record stock buybacks benefitting their executives and wealthy shareholders at a time when so many families are feeling squeezed by inflation is simply offensive.”
The bill is timely: Despite the new tax on buybacks, the practice of buybacks has reached a fever pitch amid high inflation rates largely driven by corporations jacking up prices in order to boost profits, which have broken records in recent months. Corporations announced stock buyback plans totalling $1.22 trillion in 2022, and companies are on track to beat that record again in 2023.
Stock buybacks have become extremely common in recent years as companies seek to line their shareholders’ and executives’ pockets with the excess profits they’ve made from price increases. They are eclipsing dividends as an option to enrich shareholders as they allow shareholders to avoid paying taxes; while dividends are treated as income for tax purposes, gains from buybacks aren’t taxed until a shareholder sells the stock.
The Donald Trump-backed corporate tax cuts massively opened the door to stock buybacks in 2017 by freeing up billions of dollars that corporations otherwise would have had to pay taxes on to use for buybacks. Companies have taken full advantage of this, and an analysis by the Institute on Taxation and Economic Policy published Monday found that, in the four years following the tax overhaul, S&P 500 companies collectively spent more on stock buybacks than they did on capital expenses like buildings, equipment and software.
The current explosion in stock buybacks has been a long time in the making, however, going even further back than the Trump tax cuts. Stock buybacks were all but illegal until the 1980s, viewed as a way to manipulate and inflate stock prices. But in 1982, President Ronald Reagan’s administration carved out a “safe harbor” for companies to be able to engage in stock buybacks, allowing corporations to spend significant portions of their profits on buybacks. A report in 2018 by the Roosevelt Institute found that, over the previous 15 years, firms spent about 94 percent of their profits on buybacks and dividends.
Biden has called for the stock buyback tax to be increased, and in his State of the Union address last week, the president said that quadrupling the tax will be necessary to get corporations to give back to the public, from whom they leeched those profits.
“Corporations ought to do the right thing. That’s why I propose we quadruple the tax on corporate stock buybacks and encourage long-term investments,” Biden said. He highlighted the profits of the fossil fuel industry, which raked in a record $200 billion in profits last year as gas prices soared.
Truthout Is Preparing to Meet Trump’s Agenda With Resistance at Every Turn
Dear Truthout Community,
If you feel rage, despondency, confusion and deep fear today, you are not alone. We’re feeling it too. We are heartsick. Facing down Trump’s fascist agenda, we are desperately worried about the most vulnerable people among us, including our loved ones and everyone in the Truthout community, and our minds are racing a million miles a minute to try to map out all that needs to be done.
We must give ourselves space to grieve and feel our fear, feel our rage, and keep in the forefront of our mind the stark truth that millions of real human lives are on the line. And simultaneously, we’ve got to get to work, take stock of our resources, and prepare to throw ourselves full force into the movement.
Journalism is a linchpin of that movement. Even as we are reeling, we’re summoning up all the energy we can to face down what’s coming, because we know that one of the sharpest weapons against fascism is publishing the truth.
There are many terrifying planks to the Trump agenda, and we plan to devote ourselves to reporting thoroughly on each one and, crucially, covering the movements resisting them. We also recognize that Trump is a dire threat to journalism itself, and that we must take this seriously from the outset.
Last week, the four of us sat down to have some hard but necessary conversations about Truthout under a Trump presidency. How would we defend our publication from an avalanche of far right lawsuits that seek to bankrupt us? How would we keep our reporters safe if they need to cover outbreaks of political violence, or if they are targeted by authorities? How will we urgently produce the practical analysis, tools and movement coverage that you need right now — breaking through our normal routines to meet a terrifying moment in ways that best serve you?
It will be a tough, scary four years to produce social justice-driven journalism. We need to deliver news, strategy, liberatory ideas, tools and movement-sparking solutions with a force that we never have had to before. And at the same time, we desperately need to protect our ability to do so.
We know this is such a painful moment and donations may understandably be the last thing on your mind. But we must ask for your support, which is needed in a new and urgent way.
We promise we will kick into an even higher gear to give you truthful news that cuts against the disinformation and vitriol and hate and violence. We promise to publish analyses that will serve the needs of the movements we all rely on to survive the next four years, and even build for the future. We promise to be responsive, to recognize you as members of our community with a vital stake and voice in this work.
Please dig deep if you can, but a donation of any amount will be a truly meaningful and tangible action in this cataclysmic historical moment. We are presently looking for 231 new monthly donors in the next 2 days.
We’re with you. Let’s do all we can to move forward together.
With love, rage, and solidarity,
Maya, Negin, Saima, and Ziggy