The Biden administration wants to quadruple the tax on stock buybacks to 4%.
A 1% tax on share buybacks was introduced in 2023, but it has not slowed the pace of buyback programs.
According to Goldman Sachs, around $1 trillion in stock buybacks are planned for 2025.
The Biden administration wants to quadruple taxes on corporate stock buybacks.
Ahead of President Joe Biden’s State of the Union address, the White House publish an information sheet detailing some of the initiatives that will be discussed.
One of these initiatives is to “quadruple the tax on share repurchases,” from 1% to 4%.
“President Biden would quadruple the tax on stock buybacks from 1% to 4% to address the continued tax benefit for buybacks and encourage businesses to invest in productivity and the economy broad rather than in bargains for investors,” the White House said.
THE the first-ever tax on share buybacks came into effect in 2023, and it is estimated to have generated about $8 billion in tax revenue in its first year.
The 1% tax has done little to slow the pace of stock buybacks, and Goldman Sachs estimates that there will be a record amount of buybacks worth $1 trillion in 2025. If Goldman Sachs is correct, $10 billion in taxes would be collected in 2025 from the stock buyback tax, and if Biden gets his way, that tax bill would climb to $40 billion.
Share buybacks are a tax-efficient way for companies to return capital to shareholders, as opposed to dividends, which are taxed doubly: first when a company pays taxes on its profits, and again when investors pay income tax on their dividends.
The 1% tax rate on stock buybacks is tiny compared to the federal income tax rate that investors pay on dividends, which can range from 10% to 37% depending on the amount of income.
The Biden administration is seeking to eliminate the tax advantage of stock buybacks over dividends. But with a divided Congress and a presidential election looming, Biden’s tax increase proposal is unlikely to become law in the near future.
Some of the largest share buyback programs come from very large-cap technology companies. In February, Meta Platforms announced a $50 billion stock buyback program, which will raise $500 million in taxes. This tax bill would reach $2 billion if the 4% tax on stock buybacks is implemented.
Regardless of taxes, companies appear adamant about returning excess capital to shareholders, both through share buybacks and dividends. Meta and Salesforce are two tech companies that recently launched a dividend for the first time in their history.
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