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Executives Say They're Unfazed by New Buyback Tax

S.J. Steinhardt
Published Date:
Dec 9, 2022

A 1 percent tax on buybacks that could cost companies billions of dollars takes effect in January, but many executives say they expect to continue repurchasing company stock, the Wall Street Journal reported.

S&P 500 companies spent $210 billion on stock buybacks in the third quarter, down by around 10 percent from a year earlier, preliminary data from S&P Dow Jones Indices show. Companies in the S&P 500 would have paid a combined $1.93 billion in taxes and lost about 0.45 percent in operating income had the tax been in effect for the third quarter, Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, told the Journal. 

U.S. companies describe these transactions as a good use of capital that indicates conviction in their plans and helps reduce share count, which in turn can boost stock prices, according to the Journal.

Exxon Mobil Corp., Lowe’s Cos. and Mastercard Inc. are among major business that have expanded programs or announced new ones to repurchase their stock, despite the new tax, the Journal reported.

“We don’t like the tax; nobody likes it,” said Michael Mullican, CFO at sporting goods and outdoor recreation retailer Academy Sports & Outdoors Inc. “but it’s not significant enough to where it would sway our thinking.”

The tax “won’t stop us from [continuing to buy back stock],” said Overstock CEO Jonathan Johnson. “It’s just a little bit of a toll on that road.”

A provision of the Inflation Reduction Act, the tax is projected to raise $74 billion over the next decade after it goes into effect next year. It could have raised $8.4 billion last year from the biggest public companies had it been in effect then.

The tax would have had the effect of raising the tax rate from 17.56 percent to 17.95 percent, the Journal reported, attributing those numbers to S&P Dow Jones Indices, which analyzed the buybacks for companies in the S&P 500 index.

Earlier this week, the Securities and Exchange Commission (SEC) reopened its comment period for its proposed rule on share buybacks due to the new tax.