Biden urges quadruple new 1% tax on stock buybacks

WASHINGTON—President Biden plans to propose quadrupling the 1 percent tax on stock buybacks that went into effect in January, which the White House says would encourage companies to invest in their growth instead of raising shareholders.

Mr. Biden will discuss the proposed change during his State of the Union address on Tuesday, the White House said in a preview of the speech, in which the president will also tout economic progress since the early days of the Covid-19 pandemic. The plan to raise the buyout tax may have trouble progressing through a divided Congress, where Republicans control the House.

The administration said in the preview that the taxation of buybacks evens out a bias in the tax system between different ways of returning corporate profits to shareholders. Dividends are taxable for many shareholders, while share buybacks, until this year, were not a taxable event for either the company or its shareholders.

Congress created the 1 percent tax as part of last year’s climate, health, and tax bill, known as the Inflation Reduction Act. No Republicans voted for the bill, and it was one of the few government increases. taxes that can generate unanimity among Democrats in the Senate. The Joint Commission on Taxation projected that the buyback tax would raise $74 billion over a decade. Estimates of revenue collection may include the assumption that some companies move towards taxable dividends.

Early corporate behavior and executive statements suggest that companies could accept the 1% tax as a cost of doing business, without changing their buyback practices.

Chevrons Corp.

last month it announced a $75 billion buyback along with higher dividends. The White House in its preview of the State of the Union address criticized the buybacks of oil and gas companies.

Senate Finance Committee Chairman Ron Wyden (D., Ore.) said last month that the oil company buyback tax should be 25%.

“It’s important to curb price gouging and windfall for wealthy shareholders,” Wyden said following Chevron’s announcement. Chevron did not immediately respond to a request for comment.

Mr. Biden also plans to speak on imposing minimal taxes on very wealthy Americans, who can often pay little tax if they don’t sell their investments and make an income. He proposed that idea last year and it didn’t become law while Democrats were in control of Congress.

Email Richard Rubin at [email protected]

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