How the Inflation Reduction Act Could Help to Turn the Corporate Tax Code on its Head
Simplicity and transparency in the tax code have never been promoted by Republicans like this.
I’ve seen a lot of unhappiness about the Inflation Reduction Act, the giant budget bill just passed by the Senate with a vote scheduled soon for the House. You can find a one-page summary here. The highlights of the bill are shown below:
That’s what we usually see in the news about the bill. I’ve seen conservatives bemoan the 15% minimum tax. I saw them fight against the cap on insulin prices when they know that minor improvements that are protected by patents keep the prices high. It’s good to see the IRS finally get some money to upgrade its systems, hire accountants, and have more people to enforce the code. I’m aware that the carried interest loophole has been a source of pain for Democrats, and I’m glad to see that they’ve done something about it.
The news cycle gives us the big fuzzy picture. Lost in the details was a provision to tax share buybacks at 1%. It’s a tiny tax, but it’s a start.
Share buybacks are completely transparent. The data on share buybacks is easy to find. A huge body of literature shows that share buybacks have been bad for America. Every study that I’ve ever seen about them shows that share buybacks tend to lead to negative outcomes for the companies that engage in the practice.
Instead of investing in the company infrastructure, share buybacks serve one purpose: to pump the share price. If you’re a CEO and you’ve got stock options waiting to vest, and you know they’re going to pop soon, you’d want the company to buy shares back so that when your shares vest, you make more money.
Share buybacks always come at the expense of the rest of the company. They are a ripoff for the company’s staff and a gift to shareholders.
Most of us would think that a 1% tax is not a big deal in the scheme of things. But then again, most of us don’t think like an economist at the Center for Economic…