Apple and the Krysten Sinema buyback tax

From Sabrina Escobar's "A Stock Buyback Tax Is Added to the Inflation Bill. What That Means for Apple, Meta, and Microsoft." posted Friday on Barron's:

Democratic party leaders struck a deal with moderate holdout vote Sen. Kyrsten Sinema, moving their climate and healthcare bill one step closer to fruition. The agreement, however, could spur key changes in corporate taxation, especially on stock buybacks...

Democrats may agree to scale back elements of a proposed 15% minimum tax on large companies, according to reports. They may also remove a provision that would close the carried interest loophole, which allows private-equity partners to pay the lower capital-gains tax rate on income rather than ordinary income-tax rates.

To compensate, Democrats may add a 1% excise tax on stock buybacks for publicly traded companies, The Wall Street Journal reported, citing a person familiar with the matter. The tax on buybacks “means exactly that: a 1% salami slice taken off the top of stock buyback transactions,” wrote Capital Alpha Partners analyst James Lucier...

Over the last four quarters, Apple has spent more than $86 billion buying back shares, making it No. 1 in spending on buybacks, according to Dow Jones Market Data...

This isn’t the first time Democrats weighed adding a tax on stock buybacks. The provision was a central one of the Build Back Better act, the party’s trillion-dollar social spending initiative that fizzled out in November after party leadership failed to come to a compromise with moderate Sen. Joe Manchin of West Virginia. At the time, the administration estimated that a 1% repurchase tax could generate about $125 billion in revenue over 10 years. For comparison, the carried interest loophole would have raised $14 billion in taxes. A buyback tax could also incentivize companies to shift to dividend payouts. Studies estimate that a 1% tax rate on share repurchases could induce about a 1.5% increase in dividend payouts, wrote Tax Policy Center senior fellow Thornton Matheson.

My take: Let's see... 1% of $86 billion is $860 million, which Apple can probably afford. Sinema has been holding out for the carried interest loophole -- a gift to hedge fund managers -- from the start.

12 Comments

  1. Jeff Galanti said:
    The public discourse around buybacks is so frustrating. Politicians who grandstand about them either don’t understand them or are intentionally misleading. They act as though the money used for the buybacks just goes down a drain, never to benefit our economy again. It completely ignores that there are sellers on the other ends of these buybacks who will pay long or short term capital gains taxes, if their stock has appreciated.

    The opponents of buybacks claim that, if we can stop these evil deeds, the companies will use the money to pay higher wages, “invest”, etc. Deterrents to buybacks will do none of those things.

    7
    August 5, 2022
  2. Michael Goldfeder said:
    So now everyone who is shareholder of Apple will essentially be supporting the likes of Dan Niles and other hedge fund managers with this newly installed “buybacks” tax. How nauseating.

    7
    August 5, 2022
  3. Brian Loftus said:
    So Apple makes money and pays taxes. When folks sell their stock and Apple retires the stock – if their is a profit on that stock- they pay taxes. Having fewer shares – raises the value of everyone else’s shares (at least if you believe in efficient markets) and they will pay tax in the future. Not good enough – so we have to all be taxed a 3rd time.

    10
    August 5, 2022
    • Jonny T said:
      Socialists are always finding new ways of spending other peoples money… Nothing changes.

      1
      August 6, 2022
  4. Rodney Avilla said:
    It’s one thing to tax you on your income, but to tax you on possible income that may or may not occur (unrealized income)? The democratic leadership is showing their true colors.

    9
    August 5, 2022
  5. Kirk DeBernardi said:
    I’m the last to comment on how the tax law “sausage” is made, but with a bill that’s casually referred to as the “climate and healthcare bill” — an odd mixed drink if there ever was one — politicians seem to continue bartending obfuscation.

    4
    August 6, 2022
  6. David Emery said:
    I’m surprised Sinema went to the mat on the ‘carried interest provision’. Makes me wonder what lobbyists she’s pleasing with that decision. This is the kind of fertilizer in the tax code that really bothers me. I’m VERY MUCH for tax simplification first and foremost!

    3
    August 7, 2022
  7. Gregg Thurman said:
    Tax all profits above $300,000/year, no matter how derived at 50%. Income below $300,000/year isn’t taxed at all.

    Why?

    Without federal deficit spending the US economy would come to a standstill. That makes the government a partner to those making profits, especially those making more than $300,000/year.

    PARTNERS GET HALF.

    What’s really disgusting, in my view, is that the government borrows from those extreme profit makers in order to fund that deficit spending. So in addition to making oversized profit as a result of deficit spending, those making more than $300,000 earn interest, paid by the government, to make deficit spending possible.

    The majority of the US tax code is written give high income earners tax breaks not available to lower income groups.

    2
    August 8, 2022

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