Stock buybacks are back—many people love them and many people do not, including President Joe Biden who would like to tax them.
Key Details
- Multiple major corporations have begun to announce large stock buybacks following solid first-quarter investor calls in the past month—including Meta Platforms, Chevron, and ExxonMobil.
- As we reported, Meta announced a $40-billion stock buyback on Wednesday, February 1, during its fourth-quarter earnings report. Apple similarly bought $90 billion in shares in early 2022. Chevron is working to buy $75 billion in shares over five years.
- This came despite the White House’s efforts to curb this use of market profits. The government’s recent efforts to deter buybacks through a 1% excise tax have failed, CNBC notes.
- More than half of the respondents in a Bank of America fund manager survey approved of the buybacks, Bloomberg reports.
Why It’s News
As we’ve previously discussed, Stock buybacks are typically good for stock prices for several reasons. The buybacks improve earns per share through reduced share counts and distributes capital while eliminating taxes. The buybacks will help return revenue to the companies as the economy struggles.
During Tuesday’s State of the Union Address, President Joe Biden proposed to Congress to increase the 1% excise tax to 4%, which he signed into law through the Inflation Reduction Act: “Corporations ought to do the right thing. That’s why I propose we quadruple the tax on corporate stock buybacks and encourage long-term investments. They’ll still make a considerable profit.”
Opposing Perspectives
The progressive-leaning The New Republic defended Biden’s stance against the buybacks, noting that the 1% take will raise at least $78 billion in tax revenue over the next decade, calling it one of his best actions as president, and calling for an 8% to 10% tax if the raise doesn’t function as a deterrent.
“Why would Republicans be foolish not to get behind increasing the stock buyback tax? Because there’s absolutely no way to argue that increasing this tax would reduce job creation. It’s the stock buybacks that reduce job creation by siphoning capital away from productive investment and into stockholders’ pockets,” the magazine writes.
The conservative-leaning City Journal defended the stock buybacks, noting that they’re morally and economically justified as a means of returning greater profits to shareholders in a more tax-efficient manner—at the cost of long-term investments. However, this tactic is defensible in industries with no immediate plans for long-term investments, such as the oil industry.
“Biden is angry that oil companies did buybacks this year after raking in large profits. He says they should have used that money for more exploration and expanding refining capacity to boost the supply of oil. But why would an oil company invest in infrastructure to increase production when the administration has openly stated that it hopes to eliminate fossil fuels in the next decade?” the publication writes.
