A Different Tax on Stock Buybacks

8 Pages Posted: 23 Dec 2022

Date Written: December 13, 2022

Abstract

In the Inflation Reduction Act of 2022, the US enacted a 1% tax on stock buybacks by large publicly traded corporations. The rationale was that stock buybacks are used by management as a tool for increasing the value of the remaining shares (and their stock options) while enabling shareholders to escape taxation altogether (if they are tax exempt or foreign) or pay tax at a lower rate (23.8% instead of 37%). Arguably buybacks also reduce useful corporate investments and hiring. But in practice, a 1% tax on buybacks is unlikely to reduce buybacks, although it can raise revenue (but that itself proves that it does not deter buybacks). Instead, I would propose to treat buybacks as dividends, which would make them taxable to foreign shareholders and potentially subject to a higher tax rate if the dividend rate is raised above the capital gains rate, like it was before 2003.

Keywords: stock buybacks, excise tax, income tax

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S., A Different Tax on Stock Buybacks (December 13, 2022). Available at SSRN: https://ssrn.com/abstract=4301215 or http://dx.doi.org/10.2139/ssrn.4301215

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
128
Abstract Views
714
Rank
403,727
PlumX Metrics