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The Biden administration wants to quadruple the stock purchase tax to 4%.
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A 1% tax on share buybacks was introduced in 2023, but the pace of share buyback programs has not slowed down.
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According to Goldman Sachs, an estimated $1 trillion worth of stock buybacks are planned for 2025.
The Biden administration aims to quadruple taxes on corporate stock buybacks.
Ahead of President Joe Biden’s State of the Union address, the White House released a fact sheet detailing some of the initiatives that will be discussed.
One of these initiatives includes “quadrupling the stock buyback tax from 1% to 4%.”
The White House said: “President Biden will address the continuation of tax incentives for stock buybacks, increasing the share buyback tax by 1% to encourage companies to invest in productivity and the overall economy rather than in a windfall to investors. “We will quadruple it from 4% to 4%,” he said.
The first-ever tax on stock buybacks goes into effect in 2023 and is estimated to have raised about $8 billion in tax revenue in its first year.
A 1% tax will do little to slow the pace of stock buybacks, and Goldman Sachs estimates that a record $1 trillion worth of stock buybacks will be made in 2025. If Goldman Sachs is accurate, there will be a $10 billion tax increase in 2025. It also includes a stock purchase tax, which could rise to $40 billion if Biden has his way.
Stock buybacks are a tax-saving way for a company to return capital to shareholders, as opposed to dividends, which are taxed twice when the company pays taxes on its profits and when investors pay income taxes on the dividends. This is a highly effective method.
The 1% tax rate on stock repurchases is tiny compared to the federal income tax rate investors pay on dividends, which range from 10% to 37%, depending on their income.
The Biden administration is trying to eliminate the tax benefit for stock buybacks for dividends. But with a divided Congress and a presidential election looming, it is unlikely that Biden’s tax hike proposal will become law anytime soon.
Some of the largest share buyback programs are offered by giant tech companies. In February, Metaplatforms announced a $50 billion share buyback program that would generate $500 million in taxes. If a 4% stock purchase tax were implemented, the tax would increase to $2 billion.
Regardless of taxes, companies are adamant about returning excess capital to shareholders through both share buybacks and dividends. Meta and Salesforce are two of his technology companies that recently started paying dividends for the first time in history.
Read the original article on Business Insider
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