WASHINGTON – Senate Democrats are coalescing around imposing a new tax on corporations that buy back their stocks to boost share prices and tightening rules around business partnerships that have allowed rich companies to shield profits from taxation.
The plans, likely to be included in the Senate's budget bill to offset some of its $3.5 trillion in social policy spending, show how far Democrats are willing to go in using tax policy to reshape business behavior. Democrats say the tax changes would bring in about $270 billion over 10 years, while pushing companies to invest more in their workers and businesses.
Their emergence is also a sign that Democratic leaders are still looking for fresh ways to pay for the spending as other proposals run into rank-and-file opposition. Sen. Jon Tester, D-Mont., expressed opposition Friday to a plan to tax inherited assets based on the gain in value from when those assets were initially purchased, rather than what they are worth at the time of death.
That proposal "would have a negative impact on Montana's family farms, ranches and small businesses, and he is going to keep fighting to defend those folks from shortsighted policies that put their continued operation in jeopardy," said Roy Loewenstein, a spokesman for Tester.
Taxing buybacks may be more unifying. Cash-rich firms such as Apple, JPMorgan Chase, Exxon Mobil and Pfizer spend billions of dollars each year to buy back, then retire, shares in their own companies, a practice that can help drive up the company's stock price. That has been lucrative not only for shareholders but for corporate executives whose compensation is often tightly tied to their firm's stock performance.
Heavy use of buybacks has come under criticism, especially since former President Donald Trump's huge corporate tax cut was enacted in 2017.
Proponents of that legislation promised that companies would use the tax law's windfall to boost worker wages and grow their businesses and the economy. Instead, it touched off an explosion of stock buybacks that critics say has made top executives and industry insiders even more wealthy. In 2019, the largest American companies spent a record $728 billion on stock buybacks, a 55% increase from 2018, according to Senate Finance Committee data.
Sens. Sherrod Brown, D-Ohio, and Ron Wyden, D-Ore., the Finance Committee chair, are proposing to tax the amount companies spend on such buybacks at 2% — enough, they say, to bring in revenue while making companies price in the financial risk and distortions that large-scale buybacks can pose to the economy.
