Senators Sherrod Brown (D-Ohio) and Ron Wyden (D-Ore.) proposed a bill Friday to levy a new tax on the booming market for corporate stock buybacks, putting yet another target on Wall Street as Democrats propose a slew of new tax measures to help shore up funds for a $3.5 trillion budget bill facing tough opposition from lawmakers on both sides of the aisle.
The proposal, called the Stock Buyback Accountability Act, would levy a 2% excise tax on the amount corporations spend to buy back their own stock—a common practice that returns funds to shareholders without generally requiring taxes.
In a statement, Wyden said the bill “ends the preferential [tax] treatment” for stock buybacks as he railed against corporations for using the tax savings from former President Donald Trumps’ Tax Cuts and Jobs Act of 2017 to fuel near-record stock buybacks during the pandemic.
According to the bill, the 2% excise tax would not apply to buybacks used to fund employee pension plans or employee stock plans.
In a Monday note to clients, Goldman Sachs analysts estimated U.S. companies are on track to buy back about $800 billion in their own stock this year, suggesting the proposed excise tax could raise about $16 billion annually.
Stock buybacks are only the latest target for Democrats as they look to bolster revenues through a slew of proposed tax measures, including newly proposed taxes on derivatives and hedge fund profits, alongside longer-standing proposals to increase income taxes on corporations and ultra-wealthy Americans.
“A few decades ago, a majority of Wall Street capital funded the real economy—wages, machinery, research, new construction, but today, much of that capital is funneled back to wealthy executives in the form of stock buybacks, and only about 15 percent goes to the real economy,” Brown said in a statement Friday. “Instead of spending billions buying back stocks and handing out CEO bonuses, it’s past time Wall Street paid its fair share and reinvested more of that capital into the workers and communities who make those profits possible.”
Thanks to surging corporate profits ushered in by the Trump tax cuts in 2017, corporations did a record $806 billion in buybacks in 2018, roughly 30% more than the prior record from one year earlier.
This week, Democrats started drafting a massive budget reconciliation package filled with party priorities that didn’t make it into a separate bipartisan infrastructure package. Though the bipartisan infrastructure’s price tag was trimmed to satisfy GOP lawmakers, the budget resolution bill would use the Senate’s special reconciliation process to allow Democrats to sidestep Republican support and pass the spending bill with just 51 votes instead of the usual 60. That would still require support from all 50 Senate Democrats, including moderates like Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.), both of whom have voiced opposition to the budget bill’s proposed cost. Citing concerns over heightened inflation, Manchin has said he’ll support up to $2 trillion in new spending, but only if Democrats can offset the price tag with cost savings and revenues.