The Biden administration’s new stock buyback tax will have little impact on the overall stock market. It might even actually help it. I’m referring to the new 1% excise tax on share repurchases that went into effect on Jan. 1.
This tax has set off alarm bells in some corners of Wall Street, on the theory that buybacks were one of the biggest props supporting the past decade’s bull market — and anything weakening that prop could lead to much lower prices.
Even more alarms went off after President Joe Biden telegraphed his intent to quadruple federal taxes on buybacks, to 4%.
Read: Biden’s State of the Union: Here are key proposals from his speech
While this proposal is considered dead on arrival on Capitol Hill, the focus on possibly increasing this tax from 1% reduces the likelihood that it will be eliminated anytime soon.
Tax applies to net repurchases
Yet stock-market bulls shouldn’t worry. One reason is that the new excise tax —…
2023-02-07 19:48:00 Why Biden’s 4% buyback tax could boost stock prices and dividends
Post from www.marketwatch.com
In 2021, President Joe Biden has proposed a 4% buyback tax, which is expected to significantly increase stock prices and dividend payouts for investors. This tax seeks to incentivize companies to reinvest earnings, instead of spending on corporate buybacks. This article examines the potential benefits of this tax and the effects on stock prices and dividends.
One of the key advantages of the proposed tax is its ability to drive increased capital spending. Studies have found that companies generally use earnings to either pay out dividends or engage in stock buybacks; however, under the proposed tax, companies would have an incentive to increase capital investments. This could lead to higher earnings and stronger stock prices, as reinvested earnings can lead to additional sales and profits.
The proposed tax could also benefit stock prices and dividends, as it would reduce the quantity of stock repurchases. By reducing the number of shares outstanding, the earnings per share figure will increase, and this could lead to higher stock prices. Additionally, with reduced stock repurchases, companies may be more likely to pay higher dividends to shareholders.
Furthermore, this buyback tax could benefit smaller investors and encourage more long-term investments. Currently, larger investors can easily buy back large amounts of corporate stock, which can drive up prices for smaller investors. By reducing the amount of stock repurchases, the proposed tax could create a more favorable environment for smaller investors, as there would be less competition for stock. This could lead to higher returns on investments, while encouraging more long-term investments.
Overall, Biden’s proposed 4% buyback tax could significantly benefit stock prices and dividend payouts for investors. By encouraging capital investment, reducing stock repurchases, and creating a more favorable investing environment for smaller investors, this tax could drive higher stock prices and greater dividend payouts. Ultimately, this tax could increase investors’ returns and provide much-needed incentives for long-term investments.