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Democrats Propose 2% Tax on Stock Buybacks

Senators outlined details of the tax proposal that could generate an estimated $16 billion annually.

Senate Democrats on Friday proposed to levy a 2% tax on stock buybacks to help pay for their $3.5 trillion social policy bill and nudge companies away from using their cash to boost stock prices.

Senators Sherrod Brown (D-Ohio) and Ron Wyden (D-Ore) said the plan could raise more than $172 billion over a decade. 

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 value to shareholders (by boosting share prices) while generally avoiding axes.

"It’s past time Wall Street paid its fair share and reinvested,"  said Sherrod Brown in a New York Times report.  

"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% goes to the real economy," Brown added.

According to the bill, the 2% excise tax would not apply to buybacks used to fund employee pension plans or employee stock plans.

After the Trump administration corporate tax cuts, many companies used the windfall not to invest but in a series of stock buybacks to boost their share prices. 

Corporate profits surged to a record $806 billion in buybacks in 2018 after the Trump tax cuts in 2017. Corporations did  roughly 30% more than the prior record from one year earlier.

In a statement, Wyden said the bill "ends the preferential [tax] treatment" for stock buybacks.

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, Forbes reported.