Debate: The New 1% Tax on Stock Buybacks

The Inflation Reduction Act was passed by the Senate and House earlier this month, with President Joe Biden expected to sign it into law later today. The legislation did not contain many of the proposed tax increases for individuals and corporations. It did, however, contain a new 1% tax that would apply to corporate stock buybacks. 

Corporations typically use a stock buyback strategy when they believe that their shares are undervalued. To increase value, they buy their own corporate shares to decrease the number of shares that are available on the market. The provision could raise significant revenue if enacted because major corporations have spent billions in recent years buying back their own shares.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the new stock buyback tax.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: This proposed stock buyback tax targets some of the most abusive practices that big corporations use to avoid paying their fair share of income taxes. Allowing corporations to purchase their own stock to drive up the price of that stock without tax consequences is patently unfair and actually discourages companies from paying dividends.

This is one of many tax loopholes that we need to focus on eliminating so that we can generate the revenue necessary for legislative changes designed to benefit hardworking Americans.

Byrnes: Stock buybacks are completely legal. This latest proposed tax on stock buybacks punishes successful taxpayers and corporations for taking advantage of completely legitimate strategies.

I also don’t think that this new law will have any impact on whether or not corporations choose to engage in stock buybacks. It’ll also have very little impact on investor valuation. 

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