Tuesday, September 21, 2021
Following up on my previous posts (links below): New York Times DealBook: Why Taxing Stock Buybacks Is the Wrong Fix for Executive Pay:
Corporate share buybacks have been a boogeyman on the left ever since Senator Bernie Sanders attacked them during his presidential run in 2016.
Now the cause has been taken up by Senate Democrats, who want to tax corporations on their stock repurchases. The stated reason is that companies should use their cash to increase wages rather than goose their stock prices and reward their chief executives.
But the truth is that taxing or restricting share buybacks won’t end corporate greed, or excessive compensation.
Despite the pronouncements by business leaders about their efforts to help society, most of the social good that they do arises incidentally, as a result of their success. Private businesses may be fundamental to the American experiment, but most do not set out to improve overall living standards or, specifically, to create jobs. ...
Buybacks are simply a means, via the intermediary of investors, of reallocating capital from companies with a surplus to companies with a capital need. And too much capital can be just as harmful as too little, leading to a misallocation and a waste of social resources. ...
For those who think that executives unreasonably and often obscenely game their control of corporate assets, it would be more effective to attack the problem head-on. Raise the marginal income tax on ultrahigh earners. ...
[D]oes the buyback deserve to be a whipping child for real or imagined corporate ills? Common sense suggests it is better to leave it alone.
Prior TaxProf Blog coverage:
- Daniel Hemel (Chicago), Should an Excise Tax on Stock Buybacks Also Apply to Cash M&A Deals? (Sept. 15, 2021)
- Washington Post, Senate Democrats Eye Taxes On Stock Buybacks, Excess CEO Pay (Sept. 7, 2021)
- Investor's Business Daily, Why The Apple-Led Stock Buyback Boom May Get Caught In Biden's Tax-Hike Net (June 15, 2021)
- Daniel Hemel (Chicago) & Gregg Polsky (Georgia), Equalizing the Tax Treatment of Stock Buybacks and Dividends (Apr. 19, 2021)
- Daniel Hemel (Chicago) & Gregg Polsky (Georgia), Taxing Buybacks, 38 Yale J. on Reg. 246 (Jan. 14, 2021)