Against Taxing Corporate Stock Buybacks

Among the potpourri of tax increases in Pres Biden's 2024 budget is a proposal to raise the nondeductible excise tax on corporate stock buybacks from 1 to 4 percent. Many proponents, including Sens. Charles Schumer and Bernie Sanders, claim their primary objective is not to raise revenue but to encourage companies to invest more in plant, equipment, and research and development. Their basic premise--that the alternative to buying back stock is to reinvest the funds in company operations--and other criticisms of buybacks reflect misunderstanding of the role played by share repurchases in corporate activities. Once that role is properly understood, the case for taxing buybacks vanishes.