President Joe Biden is set to make his third State of the Union address Tuesday night at 9 p.m. ET according to the White House's official website. One focus of the speech will be his plans to make it harder for corporations to buy back their own stocks, according to a statement the White House released Monday.
Biden introduced a 1% stock buyback tax as part of his Inflation Reduction Act passed last year, according to legislation passed through Congress, but critics argued the 1% was not high enough to be a deterrent for companies that wanted to purchase shares of their companies. Biden is expected to propose quadrupling the tax to 4%.
What Are Stock Buybacks?
Stock buybacks are when a company uses some of its revenue to purchase shares of its own company. This lowers the supply of shares on the available market, thus elevating the price according to former Secretary of Labor Robert Reich.
Why Is Biden Going After Them Now?
Last year, American companies amassed more than $1.26 trillion worth of stock buybacks in 2022, an all-time high and up 3% from the previous year, according to Birinyi Partners, via a Bloomberg Report.
For context, the total GDP of the U.S. is about $23 trillion, according to the World Bank, so last year, more than 1% of the world’s GDP went into companies buying their own stocks.
Why Is Biden Going After Them At All?
Stock buybacks are great for shareholders. But for others, not so much. Critics argue companies spend money on buybacks that would have otherwise gone toward a more efficient use, such as paying workers higher wages, and research and development for new innovations, among other items.
In fact, stock buybacks used to be illegal in the U.S. before President Ronald Reagan legalized them as part of his deregulation efforts, according to a report by researchers at Harvard Law School.
Now, it’s common for CEOs and executives to have their compensation packages determined by the share price. So, there may be a little bias involved if the people deciding on whether or not to do a stock buyback also happen to get paid more if the company does in fact carry through with the buyback.
Just in the past couple of weeks, Chevron Corporation CVX announced $75 billion worth of stock buybacks for shareholders according to the company's earnings call. Exxon Mobil Corp XOM followed suit with $30 billion in buybacks also announced on the company's earnings call.
And it’s not just energy giants. Meta Platforms Inc META said it would be doing $40 billion in buybacks, which was announced on Meta's earnings call.
Photo: Chompoo Suriyo via Shutterstock
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