When Did Buybacks Get So Respectable?
Even some liberals are pooh-poohing President Joe Biden's proposed quadrupling of the excise tax on stock buybacks. I don't get it.
It took me by surprise that so many respectable types, including Sage of Omaha Warren Buffett (pictured above) and even some liberals, are pooh-poohing President Joe Biden’s proposed quadrupling of the excise tax on stock buybacks. I am always open to the possibility that I’ve gotten something wrong. But I don’t see anybody engaging some key issues surrounding buybacks, including debt. That’s the topic of my latest New Republic column.
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I think I may've asked this under a previous Substack post of yours, but I really want to see somebody opposed to buybacks explain why they think buybacks are so much worse than "special dividends", and why attacking buybacks, as a standalone action, won't just drive more Wall Street looting into the dividend path. Like, many of the _worst_ cases of extractive capitalism have involved loading up companies with debt to fund special dividends.
Like, yes we need to equalize the tax treatment of capital gains, and end step-up basis at inheritance. (I think we also might need to cap the size of life insurance payouts, because there's a dodge where you basically conceal your investments inside a giant life insurance policy, and then when the beneficiary -- which could be some kind of "living trust", rather than the actual heir -- receives the payment, it doesn't count as "inheritance" or part of the "estate".) But this is all stuff we need to do _regardless_ of the situation with buybacks.
Ultimately, pushing cash out to shareholders is the same, whether you label it a buyback or a dividend. In the dividend case, many shareholders will automatically spend the dividend buying new shares; in the buyback case, some shareholders will hold and take price appreciation, and others will sell. It all evens out in the end.
Going after buybacks seems neither necessary, nor sufficient. Even if you block buybacks, private equity looters have other tactics available. And you can go after extractive capitalism via routes other than this kind of buyback-specific regulation. (Like, allow for piercing the limited liability shield in cases where the equity owners were reckless with the financial stability of the company.)
I don't necessarily think regulating buybacks is _bad_, but I don't get why this is the fight people want to pick, as opposed to focusing on something like scaling back the way the tax system prefers capital income (lower rate for income tax, excluded from FICA entirely), or capping the amount of stuff you can inherit with stepped-up basis (ideally to nothing, but it'd probably be easier to start with "you can inherit the stepped-up basis on up to $5M of present-day value, but no more than that", or something like that).