Legislation Aimed at Curbing Corporate Stock Buybacks
Catastrophic Ohio train derailment blamed on railway stock buybacks
A pair of Democratic senators is hoping to advance legislation that would curb the practice of corporations buying back their own stock by raising taxes on such transactions.
One of the lawmakers behind the bill — the Stock Buyback Accountability Act of 2023 — Sen Sherrod Brown, of Ohio, blames the horrible train derailment in East Palestine, Ohio, on the railway company pursuing such buybacks at the expense of investing in safety measures.
For most of the twentieth century, it was illegal for corporations to purchase their own stock to artificially prop up share prices. But in 1982, the SEC adopted a rule permitting companies to buy back their own stocks, and a free-for-all ensued.
By 2017, windfall profits from the tax cuts approved under Donald Trump and a Republican Congress created huge opportunities for corporations to cash in on these stock buybacks, and over the last five years, they have more than doubled, to $4.2 trillion -- including a record high of $1.2 trillion in 2022.
The trouble is, stock buybacks don’t create jobs, increase wages, or grow the economy, critics charge. It’s a shell game that does not change the underlying value of the company. All they do is make corporate executives and shareholders richer, they say.
The legislation, introduced by Brown and Sen Ron Wyden, of Oregon, would would increase the taxes a publicly traded company spends on buying back its own stock from 1 percent to 4 percent.
This hike would help reinvest in the economy, while also preventing abuse and reducing tax avoidance, both of which are significant risks from stock buybacks, the senators said.
Brown and Wyden introduced this legislation following a record year for stock buybacks, which topped $1.2 trillion, and recent reports that stock buybacks continue to be a popular option for highly-profitable corporations.
President Biden called for this increase in his State of the Union address, urging Congress to crackdown on wealthy tax cheats who exploit loopholes and avoid paying their fair share of taxes.
“It is not lost on the American people that corporate profits have climbed right along with the prices that families have been paying for groceries, rent, gas and other basics over the last few years. To see big multinational corporations announcing record stock buybacks benefitting their executives and wealthy shareholders at a time when so many families are feeling squeezed by inflation is simply offensive,” Wyden said. “Senator Brown has worked harder than anybody to ensure that big corporations and the wealthy pay their fair share, and that’s what this stock buyback proposal is all about. He and I wrote the bill last year that set the stock buyback tax at one percent, but it’s already clear that Congress needs to go further. We’re going to keep at it and pursue any opportunity to get this done.”
Brown has directly blamed the the February 3, derailment and the controlled burn of vinyl chloride impacted the small town of East Palestine, Ohio, on buybacks impacting rail company Norfolk Southern’s safety record.
“Norfolk Southern followed the Wall Street business model: boost profits, and its stock price, by eliminating 38 percent of its workers over 10 years. Those profits were spent on stock buybacks that benefit executives instead of investing in its workers and investing in safety,” said Brown.
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