Stone WashingtonNOTE TO READERS: We apologize for the barrage of ads that had been sliding in from the left side of the page. We never authorized this, finally figured out who was to blame, and stopped them.
Republicans hailed the One Big Beautiful Bill for achieving tax cuts and spending reductions. Despite this victory, the bill was missing a fix for an unwarranted tax imposed on stock buybacks by the Inflation Reduction Act.
Stock buybacks allow public companies to repurchase their own shares, and there is no good reason why the government should discourage this practice. In fact, there are several benefits associated with buybacks.
As a company grows in size, so too can the value of its stock offering, and one way to enhance stock prices is for firms to repurchase their shares at peak performance or during robust economic activity.
Stock repurchases help improve the firm’s value on the stock market and signal confidence from management, demonstrating firm health and attracting new investors. Buybacks also help investors, including middle-class investors, as the firm enhances its current market value and pays dividends. In reducing the total number of shares on its balance sheet, the company enhances the earnings potential for shareholders. Fewer shares available means each shareholder obtains a larger slice of the earnings pie, strengthening their ownership of the company. Buybacks can also be a more flexible alternative to issuing cash dividends by incentivizing retail investors to remain with the company by increasing corporate earnings per share.
Despite these benefits, many on the political left like Rep. Sean Casten, D-Ill., Sen. Elizabeth Warren, D-Mass., Sen. Chuck Schumer, D-N.Y., and Sen. Bernie Sanders, I-Vt., demonize buybacks as dollars lining wealthy pockets. That’s why, by 2023, the anti-buyback coalition was able to attach a 1% tax on all domestic stock buybacks to the Inflation Reduction Act. If Democrats regain control of Congress and the White House, that tax rate could easily rise to 4%, 8%, or even higher.
Taxing stock buybacks presents two major problems for public companies.
Invaluable research and development capital is diminished. Data shows that as companies repurchase more of their shares, they also invest in R&D as part of their overall growth. Over the past decade, corporate spending on R&D plus capital expenditures (capex) has climbed to all-time highs. Additionally, companies have enjoyed more robust cash balances at their disposal, amounting to $3.5-$5.8 trillion between 2003-2011.
The tax also increases the risk of further political interference in the markets. Proponents of the IRA’s 1% levy will likely attempt to increase this rate to something higher than 8% in order to artificially pressure companies away from buybacks and toward dividends. This is because even at a 4% rate, stock buybacks remain a more tax-advantaged option than dividends, as the Tax Policy Center model revealed.
Proponents of the buyback tax also ignore the parallel rise in record-high dividends issued by companies. According to recent 2024 data from S&P Global, “… dividends set a record $629.6 billion payments, up 7% on an aggregate basis from 2023’s $588.2 billion.” The recent surge in both buybacks and dividends demonstrates how companies have benefited from high levels of profitability. Taxing buybacks only increases the burden on new investments and introduces economic distortions in how companies make payout decisions.
For all the trouble, the tax has not been a big revenue raiser for the government. One estimate from the Bipartisan Policy Center revealed that the federal government only pocketed $7.9 billion in revenue from the tax in fiscal year 2024. Even if, as others have predicted, the government could collect around $265 billion over a 10-year period at a 4% rate, that’s not nearly enough to overcome all the downsides of the tax.
Congress should repeal the never-needed excise tax. Doing so will allow share prices to respond more fluidly to supply and demand without the government’s thumb on the scale, creating better opportunities for investors.
Stone Washington is a research fellow for the Competitive Enterprise Institute, a free-market public policy organization based in Washington, D.C.
Hamid Enayat
You cite good reasons for repeal, except the only one that matters: an immediate, tangible benefit for doing so. Merely doing the right thing is a waste of ammunition.
They didn’t miss anything. These people are corrupt to the core and haven’t represented the will of the people in decades.
Excellent article Stone and Kudos to you! The paragraph that hit at the heart of your article in my view was the following passage–
“Despite these benefits, many on the political left like Rep. Sean Casten, D-Ill.,
Sen. Elizabeth Warren, D-Mass., Sen. Chuck Schumer, D-N.Y., and Sen. Bernie
Sanders, I-Vt., demonize buybacks as dollars lining wealthy pockets. That’s why,
by 2023, the anti-buyback coalition was able to attach a 1% tax on all domestic
stock buybacks to the Inflation Reduction Act. If Democrats regain control of
Congress and the White House, that tax rate could easily rise to 4%, 8%, or even
higher.”
These parasitical politicians (all Democrats!) are the biggest hypocrites for they want to raise taxes on IRA Stock Tax Buyback “to prevent the rich from getting richer” when they are all multimillionaires and use illegal insider trading practices based on the legislation they pass and $$$ laundering through thousands of NGOs like USAID.
Speaking of USAID, didn’t Bolshevik Bernie take a $44 million USAID grant (e.g., bribe from Pres. Obama) to drop out of the 2016 presidential race against Hillary? Their treachery didn’t work then and now Trump will soon dismantle the IRS, Income Taxes and the Rothschild Khazarian Mafia Federal Reserve and replace these Socialist institutions with the Tariffs gleaned from the newly created External Revenue Service [ERS].