Huge firms are hurrying to repurchase their own stock before a new tax on stock buybacks included as part of Democrats’ major spending plan approved over the summer takes effect, a move that might deplete one of the measure’s key sources of income.
Stock buybacks occur when a firm purchases its own shares and removes them from the market, increasing the value of earnings-per-share and making each existing share more valuable.
Buybacks were banned until 1982 and have long been criticized as a legal form of market manipulation and a mechanism for CEOs to increase their salary.
“I despise stock buybacks,” Senate Majority Leader Charles Schumer (D-NY) stated in August after reaching an agreement with Sen. Joe Manchin (D-WV) on the Inflation Reduction Act (IRA). The IRA, signed into law by President Biden, implemented the 1% buyback tax after Sen. Kyrsten Sinema vetoed an earlier plan to tax hedge fund managers’ personal income (D-Ariz.).
“I believe [purchases] are one of the most self-serving things that corporate America does,” Schumer remarked. “Instead of investing in personnel, training, research, and equipment, they just – they do nothing to improve their firm and artificially inflate the stock price by simply lowering the number of shares.” They’re horrible. I’d want to get rid of them.”
T-Mobile US Inc., Johnson & Johnson, and Comcast announced fresh buyback plans in September, ahead of the IRA’s new tax’s effective date of December 31.
On September 8, T-board Mobile’s of directors approved a $14 billion stock buyback program that will run until 2023.
