You are using an older browser version. Please use a supported version for the best MSN experience.

Democrats plan to tax buybacks to help pay for $1.75 trillion spending plan

CNN logo CNN 10/28/2021 By Matt Egan, CNN Business
WASHINGTON, DC - OCTOBER 22: The U.S. Capitol Building is seen on October 22, 2021 in Washington, DC. Following a breakfast meeting with U.S. President Joe Biden, House Speaker Nancy Pelosi (D-CA) said that Democrats were nearing a deal on reconciliation. (Photo by Anna Moneymaker/Getty Images) © Anna Moneymaker/Getty Images WASHINGTON, DC - OCTOBER 22: The U.S. Capitol Building is seen on October 22, 2021 in Washington, DC. Following a breakfast meeting with U.S. President Joe Biden, House Speaker Nancy Pelosi (D-CA) said that Democrats were nearing a deal on reconciliation. (Photo by Anna Moneymaker/Getty Images)

The framework on President Joe Biden's $1.75 trillion economic and climate agenda calls for paying for the ambitious agenda in part by imposing a surcharge on corporate stock buybacks.

The outline for the spending bill, announced by the White House on Thursday, promises that the Build Back Better framework is "fully paid for."

In addition to imposing a 15% minimum tax on companies with more than $1 billion in profits, the framework includes a 1% surcharge on corporate stock buybacks.

The surcharge could bring in significant revenue. Through the first six months of 2021 alone, S&P 500 companies repurchased $609 billion in stock, according to S&P Dow Jones Indices. Under the buyback surcharge announced by the White House, they would owe $6.1 billion.

Companies use buybacks to return extra cash to shareholders. Wall Street loves buybacks because these repurchases boost demand for shares and at the same time limit supply. They also inflate per-share profits, a key metric that drives the stock market.

Critics of buybacks, however, say many companies have abused this mechanism to the detriment of the broader economy and everyday Americans.

The framework notes that corporate executives often use buybacks "to enrich themselves rather than investing [in] workers and growing the economy."

Just this week Facebook boosted its share buyback plan by $50 billion. Under the buyback surcharge announced by the White House, Facebook would owe $500 million.

The Trump tax cuts enacted in 2017 slashed the corporate rate to 21%, down from 35%. Although the stated purpose of the tax law was to encourage companies to invest in the real economy, business spending on factories, equipment and software did not live up to the hype. By early 2019, Bank of America declared it "the investment boom that wasn't."

Major companies did, however, reward shareholders by plowing excess profits into record amounts of buybacks in 2018, with each quarter setting an all-time high.

"In 2017 when taxes were cut substantially, you did not see any surge in investment spending. Instead, what you saw was a surge in stock buybacks," Treasury Secretary Janet Yellen told lawmakers during a hearing last month.

AdChoices
AdChoices

More from CNN

image beaconimage beaconimage beacon