Two influential Senate Democrats introduced a bill Friday to implement a 2% tax on stock buybacks.
The bill, the Stock Buyback Accountability Act, introduced by Sherrod Brown, D-Ohio, chairman of the Senate Banking Committee, and Ron Wyden, D-Ore., chairman of the Senate Finance Committee, takes aim at companies buying their own stocks instead of using capital to make investments, create new jobs and raise wages, the senators said in a news release.
Messrs. Brown and Wyden point to a surge in stock buybacks after Republicans in 2017 passed a bill cutting the corporate tax rate to 21% from 35%. In 2018, stock buybacks increased 55% to a record $806.4 billion, according to data from S&P Dow Jones Indices.
"Instead of spending billions buying back stocks and handing out CEO bonuses, it's past time Wall Street paid its fair share and reinvested more of that capital into the workers and communities who make those profits possible," Mr. Brown said in the news release.
Added Mr. Wyden in the same news release, "Stock buybacks are currently heavily favored by the tax code, despite their skewed benefits for the very top and potential for insider game-playing. Our bill simply ends this preferential treatment and encourages mega-corporations to invest in their workers."
The 2% tax would not apply to stock buybacks that are used to fund an employee pension plan or an employee stock ownership plan.
Sen. Pat Toomey, R-Pa., ranking member on the Senate Banking Committee, criticized the bill in a statement and said it will hurt investors. "I'm astonished my Democrat colleagues think it's a good idea to punish a company's investors — including those invested via a 401(k) or a pension plan — when fellow investors in the same company decide to sell their stock and take back some of their own money," Mr. Toomey said.
Tom Quaadman, executive vice president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, said in a statement that stock buybacks, like dividends, "Not only give investors a return on their money, but also allow investors to decide how best to put their money to use. Shareholders often reinvest gains from buybacks into growing new businesses and creating jobs, which means that proposals to restrict or discourage buybacks would ultimately be detrimental to the U.S. economy and American families at a time of economic uncertainty."
Mr. Brown had also introduced a bill — the Stock Buyback Reform and Worker Dividend Act — in July 2019 with a similar intent of curbing stock buybacks, but it didn't advance further after introduction.