Investor's Business Daily, Why The Apple-Led Stock Buyback Boom May Get Caught In Biden's Tax-Hike Net:
Hours before President Joe Biden's April 28 primetime pitch for $4.5 trillion in infrastructure and social spending, Apple (AAPL) wowed Wall Street with its own big-spending plan — $90 billion in Apple stock buybacks.
But Apple was hardly the first big company to use fat recent profits to repurchase shares from investors. Just a day before Apple's news, Google parent Alphabet (GOOGL) teed up a $50 billion buyback. Among others, JPMorgan Chase (JPM) set plans to buy back $30 billion in shares. ...
Yet a possible pitfall lies ahead. An under-the-radar proposal to tax stock buybacks as if they were dividends could reel in huge sums from investors, providing needed cash for Biden's government expansion. That might quiet the stock buyback boom and weigh on foreign demand for U.S. equities. The approach to taxation also may stir controversy. It's already taking flack for taxing "phantom income" and micromanaging corporate finances. ...
Corporate cash spent on buybacks buoys earnings per share by reducing share counts, contributing to higher stock prices. Stockholders who sell their shares back to the company may pay capital gains on the proceeds. For those who don't redeem their shares, buybacks will result in a bigger capital-gains tax bill, but only when they sell their stock — if they sell.
That ability to defer taxes is likely the biggest reason that buybacks have become the preferred way of distributing capital to shareholders for many of America's biggest and most successful companies.
Apple spent more than five times as much on Apple stock buybacks ($72.5 billion) in fiscal 2020 as it paid out in dividends ($14.1 billion). ...
Up until the late 1990s, S&P 500 companies spent more on dividends than on buybacks. But in 2019, buybacks totaled $729 billion, 50% more than the $485 billion distributed as dividends.
Now all that buyback cash is getting attention as a potential avenue to fund Biden's spending plans.
June 15, 2021 in Scholarship, Tax, Tax News, Tax Scholarship | Permalink