Well, if econophile did that, I’ll eat my hat.
I agree that’s bad, but I think it’s a completely separate issue from tax treatment.
If we throw that on top of what econophile did, then I suppose one could come out ahead.
I’m quite sure econophile is aware he ended up with less cash than selling and paying taxes.
Just wait until I die and my kids get a step up in basis. Then it will be party time 
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Yeah, I didn’t mean to suggest otherwise.
It can be surprisingly close to break even in a high tax state if you’re in the top brackets. In California, you can potentially deduct against ordinary income at ~55% and avoid CG tax at ~35%, so the difference is only 10 cents on the dollar (ignoring basis),
How about “the idea that as a matter of public policy it is good to nudge big corporations to reinvest rather than distribute”. That’s a more honest assessment.
If the corporations don’t like it, then they could consider going private or look at a non-corporate structure. A corporation is nothing more than a legal entity created by government as a matter of public policy. They are not entitled to tax-free return of capital.
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Reinvesting profits will lead to more capital gains!
I don’t agree with this - there’s a large academic literature documenting the fact that public companies are prone to empire building, potentially because CEOs want to increase their compensation and prestige at the expense of shareholders. I don’t think reinvestment is obviously a thing that should be incentivized.
If the corporations don’t like it, then they could consider going private or look at a non-corporate structure. A corporation is nothing more than a legal entity created by government as a matter of public policy. They are not entitled to tax-free return of capital.
My initial reaction to this was that a corporation’s public/private status wouldn’t matter here. Then I realized that I was just assuming that the buyback tax applied to all corporate entities. But apparently it’s just publicly traded firms? WTH? Why should Koch Industries or whoever be able to buy back shares, but public companies can’t? What argument is there, outside of “public companies bad”, for imposing a tax on public company buybacks, but not private company buybacks?
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Not saying you agree with this. I’m saying that’s the Biden admin position rather than “companies shouldn’t return capital”.
There are all sorts of things that apply to public companies differently than private ones that run the range of "it should be that way for transparency, governance etc’’ all the way to “it may not be perfect but it’s a good cutoff point for the goal of the policy and ease of enforcement”. It’s clear you don’t like the policy, but it feels like you are being deliberately obtuse.
Private companies can’t usually do buybacks without triggering dividend taxation.
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Here’s what he said in the State of the Union
Why? They invested too little of that profit to increase domestic production, and when I talked to a couple of them, they say, “We’re afraid you’re going to shut down all the oil wells and all the oil refineries anyway, so why should we invest in them?”
I said, “We’re going to need oil for at least another decade.” And that’s going to exceed — and beyond that — we’re going to need it. Production. If they had in fact invested in the production to keep gas prices down — instead, they used the record profits to buy back their own stock, rewarding their C.E.O.s and shareholders.
Corporations ought to do the right thing.
That’s why I propose we quadruple the tax on corporate stock buybacks and encourage long-term investments.
They’ll still make considerable profit.
Let’s finish the job and close the loopholes that allow the very wealthy to avoid paying their taxes.
No mention of dividends, which is the obvious alternative to buybacks. Why would making buybacks more costly encourage re-investment rather than incentivize higher dividends? And even more, why in the world is that desirable? Assuming its the true effect (dubious as dividends exist), encouraging capital investment of cash that companies would rather return to the shareholders isn’t obviously good. And compared to dividends it defers taxation, since investment or acquisition would lead to higher share price and more easily-deferred capital gains.
Interesting, didn’t realize this, thanks. I was having a surprisingly hard time googling for information about private company buybacks.
Because even if the new policy passes there’s a still a ~4-5x tax drag on distributing via dividends rather than buybacks?
Assume the goal of a CEO is to maximize the present value of all discounted future owner cashflows. Then there must be a project that does not happen when buybacks are taxed at 0% and dividends are taxed at 20% but does happen when buybacks are taxed at 4% and dividends are taxed at 20%.
I’m not going to debate whether that’s good policy. It’s far from obvious to me that it’s bad policy. I’m just trying to cut through the crazy language ITT about how this policy is "rage-inducing’ and “cheap demagoguery”.
I feel like we’re talking past each other. I’ve largely been complaining about the different rationales I’ve seen in support of this plan. Like here:
I continue to believe that casting buybacks as evil is really stupid. I do not believe that the excise tax itself is necessarily stupid, and now that I know that private companies face similar tax treatment for repurchases and dividends (thanks bobman), I’m even more ok with trying to get parity for public firms.
So yes, when I see quotes like:
Senate Finance Committee Chairman Ron Wyden (D., Ore.) said last month that oil companies’ buyback tax should be 25%.
“It’s important to put a check on the price gouging and the windfall for wealthy shareholders,” Mr. Wyden said after Chevron’s announcement.
I will continue to be pissed off. That’s not about achieving dividend/repurchase tax parity. If I’m obtuse because I actually believe politicians when they provide the rationale for their policies, then maybe I’m guilty.
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Only if capital gains taxes never get paid. Which of course is not true, and why all mature companies return dividends and do buybacks. For some shareholders dividends are better for their situation, for others buybacks are.
This just straight up ignores that capital gains taxes are a thing. But anyway why is this project a good thing to spend money on? Companies tend to like to do projects that make them money and don’t really need to be prodded to undertake them. Why is the marginal project that uses cash the corporate officers would rather return to investors be a good thing to do?
I think that is the message the Democrats want to convey but in reality this would rarely go to R&D but instead to overpriced acquisitions that business schools make case studies about 20 years later
Between Roth, HSA, 529 plans, step up basis on inheritance, etc. there are a lot of capital gains that never get taxed, though some of these vehicles may also prevent taxing of dividends.
Americans intuitively know rich people are not paying taxes. So politicians rightly try to translate that anger into political support. But basically all of them are bought and paid for by said rich people so the actual policies they propose and implement are purposely ineffective, disjointed and idiotic.
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All of the tax advantages accounts shield taxes on dividends, right?