There's a Problem With Buybacks, But It's Not What Senators Think
Tax Notes, February 18, 2019, Volume 162, Number 7, p. 765
6 Pages Posted: 29 May 2019 Last revised: 26 Sep 2019
Date Written: February 18, 2019
In a deeply divided Washington, one of the few issues on which leading lawmakers on both sides of the aisle appear to agree is that corporations should be discouraged from buying back their stock from shareholders. This short article argues that, while this anti-buyback sentiment is misguided, there nevertheless are good tax policy arguments for reforming the tax treatment of buybacks. The article recommends adoption of a 1969 proposal made by Professor Marvin Chirelstein that would recharacterize (for tax purposes) buybacks as a pro rata cash dividend, followed by sales of shares from the shareholders who participate in the buyback to the shareholders who do not.
Keywords: buybacks, redemptions, share repurchases, corporate tax, corporate distributions, dividends
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