Failed Incentive – The Rise in Stock Buybacks
President Biden and the Democrats have implemented many ambitious spending plans with a goal of bolstering the US economy both in the short and long term. Many of these packages include the infrastructure bill, the Inflation Reduction Act, and the CHIPS Act, but no administration could spend this much money without having some method to fund it. Contrary to the previous administration, taxes have been raised on the wealthy and corporations, a decision that the Democrats have been running on for a while. A unique tax that was implemented on corporations involves stock buybacks, with a 1 percent excise tax every time a business executes a share repurchase.
These new economic policies have gone into effect starting January 1st of this year, but it seems that the stock buyback tax might be less effective than it seemed. Data from TrimTabs Research finds that in January of 2023 alone, there were $123.6 billion announced in buybacks, a little more than twice the amount of January 2022. Notable companies include Chevron and Meta, with the Biden administration picking on Chevron in the State of the Union. Analysts believe that the incentives still point towards stock buybacks due to the increase of the value of shares, rather than providing increased dividends to shareholders. The 1 percent tax is clearly not doing enough to disincentivize companies, and President Biden mentioned increasing the rate in his State of the Union speech last week. Stock buyback activity will continue to occur throughout the year as more companies will be well positioned to implement those plans, but it also gives the government leeway as to how they want to adjust the rate to get the desired revenue considering this is in some ways a bipartisan push
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
