Stock buybacks hit a record $882 billion last year, and they may reach $1 trillion this year. The biggest corporations spend the most on buybacks. Thus Apple lavished $91 billion over the previous four quarters, according to The Wall Street Journal; Alphabet (Google), $55 billion; Meta (Facebook), $53 billion; Microsoft, $33 billion; and Bank of America, $21 billion.
Until recently most buybacks were funded by corporate profits. A 2020 Harvard Business Review article reported that buybacks in 2018 gobbled up fully 68 percent of net income in the S&P 500. But even with corporate profits at record highs, earnings can no longer meet the voracious demand for buybacks. So a growing proportion of buybacks—one recent estimate put it as high as 56 percent— are now “leveraged buybacks” paid for with corporate debt. Corporations are going into hock so they can shower more cash on shareholders and their top executives.
The proposed excise tax on buybacks is only 1 percent, so its initial effect on this drunken binge will be minimal. Indeed, in the short term it will likely create an uptick in buybacks as some corporations accelerate buybacks to avoid the tax’s implementation in 2023. The initial proposal by Democratic Senators Sherrod Brown of Ohio and Ron Wyden of Oregon—Brown is the Banking Committee chairman, while Wyden leads the Finance Committee—was for a 2 percent tax on buybacks, which would have been better. Five or 10 percent would be better still.