Joe Biden proposes raising the tax on corporate share buybacks

  • The president of the United States declared that “companies must do the right thing”, for which he proposed quadrupling the tax for the repurchase of shares.
  • What could happen if Biden’s idea moves forward and a bill is introduced to make it happen?
  • This comes just as companies have repurchased $173.5 billion of shares so far in 2023, more than double the same period in 2022.

President Joe Biden knows that executives launched a massive share buyback for their companies, with the goal of boosting stock prices.

For this reason, the President of the United States declared:

“Corporations should do the right thing. That’s why I propose we quadruple the tax on corporate stock buybacks and encourage long-term investment. They will still make considerable profits.”

After slowing down in the fourth quarter of last year, corporations repurchased shares at the start of this year. These trades are intended to reduce shares outstanding, which often increases net earnings, which is the lifeblood of stock prices.

Major Wall Street companies reported $173.5 billion in share buybacks in just one month and one week of 2023, more than double what was seen during the same period in 2022, EPFR TrimTabs revealed.

Meta, for example, which laid off thousands of employees and its latest earnings report disappointed investors, went from buying back $28 billion last year to raising that number by $40 billion by 2023.

Oil companies Chevron and Exxon Mobil also picked up the pace of buybacks thanks to the rise in crude oil and their great cash power. In 2022, each of the firms repurchased shares for 15,000 million dollars, while their new plan is to increase that number to 75,000 million and 35,000 million, respectively in 2023.

But what would be the effect if Biden’s suggestion goes through? This would mainly cause companies to slow down their buybacks so that shares would rise more slowly in a bullish context.

Still, most professionals agree that a buyback tax is unlikely anytime soon.

This will not happen, but it shows that the Administration is bullish on this particular policy tool when it comes to future revenue debates, and it also indicates that populist rhetoric about corporate profits will persist,” commented EvercoreISI political strategist Tobin Marcus.