WASHINGTON, D.C. – Today, U.S. Senators Sherrod Brown (D-OH) and Ron Wyden (D-OR) unveiled new legislation to prioritize real investment in the economy over Wall Street shareholder giveaways in the form of stock buybacks. The senators’ Stock Buyback Accountability Act would assess a two percent excise tax on the amount spent by a publicly-traded company on buying back its own stock, helping to reinvest in the economy, while also preventing abuse and reducing tax avoidance, both of which are significant risks from stock buybacks.
“A few decades ago, a majority of Wall Street capital funded the real economy – wages, machinery, research, new construction. Today, much of that capital is funneled back to wealthy executives in the form of stock buybacks – which used to be illegal market manipulation – and only about 15 percent goes to the real economy. 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,” said Brown.
“Rather than investing in their workers, mega-corporations used the windfall from Republicans’ 2017 tax cuts to juice their stock prices and reward their wealthiest investors and their executives through massive stock buybacks,” said Wyden. “Even as millions of families struggled through the pandemic, corporate stock buybacks are once-again nearing all-time highs. Stock buybacks are currently heavily favored by the tax code, despite their skewed benefits for the very top and potential for insider game-playing. Our bill simply ends this preferential treatment and encourages mega-corporations to invest in their workers.”
For many years stock buybacks were nearly banned due to the market-manipulation risk they presented. Today, serious concerns remain about corporations using stock buybacks to inflate their stock prices, particularly when corporate insiders have significant amounts of stock-based compensation themselves.
After the 2017 Republican tax law, instead of higher job growth or a GDP surge, we saw corporations spending hundreds of billions of dollars buying back their own stock. The big winners were rich shareholders, CEOs, and foreign entities, not American workers.
“Corporate stock buybacks further enrich already wealthy CEOs and major shareholders while helping them dodge their fair share of taxes. They’re one more way in which corporations, billionaires and the other ultra-wealthy play by their own set of tax rules. Taxing excessive stock buybacks would ensure that corporations and the very rich pay closer to their fair share; raise needed revenue for vital public services like healthcare, education and climate-change response; and narrow the wealth gap that destabilizes our economy and imperils our democracy,” said Frank Clemente, executive director, Americans for Tax Fairness.
“White, Black and Brown working people have borne the brunt of the Covid-19 crisis. This proposal will make sure that executives pitch in a little bit more to the recovery as they line their own pockets via stock buybacks,” said Mandla Deskins, Take on Wall Street at Americans for Financial Reform.
“There is no reason stock buybacks should receive preferential tax treatment, as they do now in multiple ways. This legislation would help remedy that tax code flaw through an administratively simple means – a corporate excise tax. More importantly, it would raise substantial amounts of revenue from the wealthiest corporations that engage in this practice. It is a further illustration that Congress has plenty of progressive, common-sense revenue options to consider and therefore no excuse to shortchange the critical investments we need,” said Seth Hanlon, Senior Fellow at Center for American Progress.
Large corporations buy back stock using the capital that could be used to make investments, create new jobs, and raise wages. This practice has further exploded under former President Trump’s tax law that overwhelmingly benefited major corporations and the top 1 percent. Stock buybacks also provide a tax arbitrage opportunity for wealthy shareholders, as a means to delay and potentially fully-avoid tax on their share of corporate gains.
Stock buybacks were once a small share of corporate distributions, but now dominate, and have only exploded following the 2017 Republican tax bill – a case of the rich, literally, getting richer. In 2018, the largest U.S. companies spent a record $806 billion on stock buybacks, a 55 percent jump from the prior year. In 2021, as millions of families are struggling through the pandemic, corporate stock buybacks should approach, or even surpass, this record. To put that in perspective, the median household in the U.S. has a net worth of $97,300, with Hispanic ($38,000) and Black ($23,000) families even less.
The two-percent excise tax on stock buybacks by publicly-traded corporations in Sen. Brown and Sen. Wyden’s Stock Buyback Accountability Act would not apply to the extent the stock buyback is used to fund an employee pension plan, an ESOP, or similar vehicle, is used for employee stock plans, or is below a de minimis threshold. Special rules address the treatment of foreign corporations, while inverted corporations are fully subject to the excise tax.
Bill text is available here.