On August 7, 2022, Townhall published an op-ed by ATR Federal Affairs Manager Bryan Bashur. The article argues that the inclusion of a buyback tax in the Inflation Reduction Act would violate the president’s pledge to not tax individuals making less than $400,000.
The piece begins by explaining that the Democrats have placed a multi-billion tax on stock buybacks. It goes on to present evidence that this will not only harm the affluent:
Millions of Americans own stocks either directly, through a retirement plan, or a brokerage account. According to the Investment Company Institute, in 2019, 56 percent of households owned publicly traded stocks through retirement accounts and various mutual funds. Stock ownership has also risen drastically over the years. The Federal Reserve conducted a survey showing that from 1989 to 2019, household stock ownership had risen by 21 percent.
Lower-and middle-income make up a significant chunk of stock ownership in the U.S. ICI data shows that “four in 10 stock-owning households have annual family incomes of less than $74,000.” An additional 27 percent of households owning stock make between “$74,000 and about $127,000.”
Next, the op-ed shows how this tax would hurt the public pension funds of Americans in both blue and red states by discouraging the use of buybacks that benefit state employees like teachers, police officers, and firefighters.
It also explains that companies use buybacks instead of dividends to compensate shareholders because it is more tax efficient, and the Democrats’ plan to dictate how a company can allocate capital to its shareholders and employees is “the antithesis of a free market approach.”
The piece explains that the Democrats’ justification is based on the false premise that only company executives benefit from stock buybacks. But the bearers of this new tax burden would not be the wealthy:
According to an article written in Harvard Business Review, “About 50% of total equity issuances are to firms’ own employees, with the vast majority (85%) of those shares going to nonexecutive employees.” Taxing buybacks will disincentivize firm’s usage of the cash distribution tool, hampering returns for employees.
Middle-class Americans rely most on capital invested in their 401(k)s and pensions, not dividends or capital gains. If companies are forced to resort to offering dividends because the cost barrier to buybacks is too high with the additional excise tax, then wealthier Americans will benefit while everyone else will see their retirement packages produce poorer returns.
Finally, the op-ed disputes Sen. Schumer’s (D-N.Y.) claim that buybacks crowd out capital investment by quoting a study that indicates that shareholder payouts have not detrimentally affected investment. It concludes by noting how this provision in the Inflation Reduction Act is ostensibly aimed at wealthy corporate executives but would really punish the middle-class most, in direct violation of President Biden’s pledge.
Click here to read the full op-ed.