Democrats on the Senate Finance committee want to tax stock buybacks like dividends. The Democrats desire is of course to generate revenue so they can spend more money, but taxing stock buybacks like dividends isn’t the worst idea.
Dividends and capital gains should be tax-free as that money has already been taxed once. Short of that, it you are going to tax dividends and capital gains, buybacks should be put on equal footing in terms of taxes. Taxing buybacks is certainly better than raising the dividend and capital gains tax rate to 39.6% which is also under consideration.
Bloomberg has more.
Democratic lawmakers are discussing a range of tax proposals targeting corporations and the wealthy — including levies on stock buybacks, carbon emissions and executive compensation, a wider set of measures than President Joe Biden had proposed to help fund a ramp-up in spending on social programs.
One idea is applying an excise tax on stock buybacks or treating them as taxable dividends to shareholders, according to two people familiar with Senate Finance Committee discussions. Corporate deductions for executive pay could also be limited, and chief executive officers could face an excise tax if their pay exceeds that of an average company worker by a certain ratio, the people said.
The expanded menu of tax options would give Democrats more flexibility as they undertake thorny negotiations among themselves over how to pay for a proposed $3.5 trillion of long-term investments in child care, education and other social programs. Biden and Democratic lawmakers have repeatedly made clear that their plans will not raise taxes on those making less than $400,000 a year.
Assorted other proposals are in the mix and have previously been proposed by Biden or by Senate Democrats, including raising the 21% corporate rate, increasing taxes on overseas company income and raising both the top individual income tax rate to 39.6% as well as the capital gains rate for high-income investors.
It’s not clear which parts could pass muster, however, given the views of Senator Joe Manchin of West Virginia, a pivotal Democrat who this week blasted the $3.5 trillion size of the legislation and called for a pause in its consideration given concerns about inflation and debt.
Treating corporate buybacks and dividends similarly for tax purposes would raise $70 billion to $80 billion a year, “making it a potentially attractive add-on to future budget bills that strive for revenue neutrality or deficit reduction,” law professors Daniel Hemel and Gregg Polsky wrote in a paper earlier this year.