President Joe Biden has championed a substantial financial proposal in the second half of his term: raise taxes on companies that do stock buybacks. This initiative aims to redirect corporate funds towards business expansion and job creation, instead of primarily benefiting executives who typically reap the rewards of such programs. However, despite its expected benefits, the proposal has met with notable resistance, even from traditionally supportive voices within the Democratic camp.
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Biden’s Plan
Currently, companies pay a 1% tax on stock buybacks, a charge created when Democrats passed the Cut Inflation Act in 2022. In the State of the Union in January, however, Biden pushed to raise the rate to 4%. According to a Morningstar report, he specifically called out the oil industry, noting that “Big Oil…has invested too little [their] profit to increase production and keep gas prices low. Instead, they used those record profits to buy back their own shares, rewarding their CEOs and shareholders. »
Biden also notes that this tax will increase federal revenue, which is important if he is to continue pushing for progressive domestic policy in a potential second term.
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repression
One of the voices speaking 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 takeovers are harmful to shareholders or the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters who are not mutually exclusive) “, Buffet wrote in a note to shareholders of his company, Berkshire Hathaway.
More likely opponents of Biden also weighed in. Writing in the opinion section of the Wall Street Journal in February, economist Burton Malkiel says the tax will hurt not just CEOs but average investors.
“While direct stock ownership is not common among low-income people, indirect ownership through pension 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 typically reinvest redemption proceeds and rely on stock market returns to maintain the viability of their programs.”
The essential
President Biden is keen to raise the tax on stock buybacks from 1% to 4%. While Biden and his supporters say it would force corporations to reinvest money in their business rather than enrich executives — while increasing federal revenue — there are critics on both sides of the aisle pushing back. .
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