Corporate Share Buybacks.

• Author: Van Doren, Peter

"The Attack on Share Buybacks," by Harry DeAngelo. SSRN Working Paper no. 4255207, November 2022.

Corporate share buybacks are under political attack. The 2022 Inflation Reduction Act imposed a 1 percent excise tax on the fair market value of shares repurchased by corporations. Now, President Biden has proposed increasing the tax to 4 percent. (See "Against Taxing Corporate Stock Buybacks," P-5.)

Opponents of buybacks believe that they enrich managers (whose pay is tied to stock prices) and shareholders at the expense of workers and consumers who would benefit from increased corporate investment. But investors supply capital to firms only if they receive future after-tax distributions (in present value adjusted for risk) that exceed the initial investment in the firms. And taxes on buybacks reduce...