Equalizing the Tax Treatment of Stock Buybacks and Dividends

8 Pages Posted: 19 Apr 2021 Last revised: 10 Dec 2021

See all articles by Daniel J. Hemel

Daniel J. Hemel

University of Chicago - Law School

Gregg D. Polsky

University of Georgia School of Law

Date Written: April 15, 2021


This policy brief highlights flaws in the current federal tax treatment of stock buybacks and proposes to address those flaws by equalizing the tax treatment of buybacks and dividends. (We explore the proposal in greater detail in Hemel & Polsky, Taxing Buybacks, 38 Yale J. on Reg. 246 (2021), https://ssrn.com/abstract=3764112.) Stock buybacks allow foreign shareholders to avoid U.S. withholding tax on corporate cash distributions. Stock buybacks also allow U.S. taxable investors to reduce or eliminate shareholder-level tax on corporate cash distributions through a combination of deferral, loss harvesting, and stepped-up basis at death. Our proposal—based on an idea first suggested by Marvin Chirelstein a half century ago—would plug these gaps in the tax base by treating stock buybacks as imputed dividends. We explain the mechanics of the proposal and the principal design choices facing policymakers. We also estimate—conservatively—that the proposal would raise more than $500 billion over the 10-year budget window.

Keywords: buybacks, share repurchases, capital gains, dividends, tax law, tax policy

JEL Classification: K34

Suggested Citation

Hemel, Daniel J. and Polsky, Gregg D., Equalizing the Tax Treatment of Stock Buybacks and Dividends (April 15, 2021). U of Chicago, Public Law Working Paper No. 771, University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 928, University of Georgia School of Law Legal Studies Research Paper No. 2021-17, Available at SSRN: https://ssrn.com/abstract=3827117 or http://dx.doi.org/10.2139/ssrn.3827117

Daniel J. Hemel (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

Gregg D. Polsky

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States

Do you want regular updates from SSRN on Twitter?

Paper statistics

Abstract Views
PlumX Metrics