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Sinema share buyback tax reveals ‘government knows best’ attitude

Congress has “invested” in the American economy to the tune of 7,000 billion dollars over two and a half years. The result? Inflation is at an all-time high, the economy is stagnant at best, and more than 60% of Americans now say they live paycheck to paycheck.

Americans got a lousy return on that investment.

Following Congress’ spectacular failure to directly invest American taxpayers’ money (and dollars printed by the Federal Reserve), the Senate now wants to “help” Americans invest better with the so-called Tax Reduction Act. inflation debated in a Saturday session.

The Democrats’ bill, for example, would dramatically redirect investment into speculative green energy projects at the expense of reliable oil and natural gas investments through $332 billion in energy tax credits. green.

The bill would also authorize the Secretary of the Treasury to approve $250 billion in loan guarantees for qualifying energy projects. Of course, if these government-subsidized investments failed, the taxpayer would be left with the bag – remember Solyndra?

And now, in another case of the government’s attitude to investing, Sen. Kyrsten Sinema, D-Arizona, reportedly pushed for the bill to include a new excise tax on stock buybacks, which would discourage sound investment.

Taxing stock buybacks is a misguided policy that would further dampen the US economy, making it harder for growing companies to get the financing they need. Adding even more impediments to business investment at the onset of a recession would only cost jobs and further depress real wages for Americans.

Although many Americans are unfamiliar with stock buybacks, they nonetheless benefit from the additional dynamism and economic growth that these buybacks promote.

When a company makes a profit, it can either reinvest that money back into the business or put it back into the hands of its shareholders and 401(k) owners.

The most common way for companies to return profits to investors is by paying a fixed dividend per share. However, once companies start paying dividends or increasing the amount of their dividends, shareholders generally expect it to become a recurring payment.

Alternatively, companies can return profits to shareholders by buying back shares from those who wish to sell shares at the set buyback price.

Unlike dividends, share buybacks are considered one-time events. Therefore, share buybacks are a good way for companies to return profits to investors while retaining the flexibility to plan future reinvestments in the business.

A new tax on share buybacks, as Sinema proposes, would discourage these companies from returning profits to investors, who in turn could reinvest in companies that could make the best use of short-term funds.

In practice, taxing share buybacks specifically would hurt fast-growing small businesses that are most dependent on new funding. These companies are responsible for much of America’s innovation, and a stock buyback tax would hold them back.

At the same time, a tax on share buybacks would help trap capital funding in large, established and less dynamic companies.

As economist Tyler Cowen points out: “Are you worried that companies are too big and monopolistic? This makes it harder for them to shrink! Also think of it as a tax on reallocating capital to new and growing projects.

When companies announce their willingness to repurchase shares at above market price, it can also be a valuable signal to markets and investors of management’s confidence in the company.

Just as a product warranty gives consumers greater confidence in the quality of what they are buying, stock buybacks are a way for companies to put their money where they say it should. The proposed new tax would make it harder for investors to distinguish sound investments from those that are not.

Proponents say the proposed buy-back tax would add about $73 billion in additional taxes to the cost of Democrats’ huge tax and spending bill. This is in addition to approximately $300 billion in other new taxes and the estimated $200 billion in tax revenue from the expanded application of the IRS ($120 billion net of new cost of IRS funding ).

So while green energy lobbyists would win a huge windfall from new government-subsidized investment, corporate America in other industries could expect more taxes and more audits.

The taxes proposed by the Democratic Senate bill would also have the unfortunate effect of making investments in foreign companies more attractive compared to investments in US companies. This means that more good jobs would end up abroad and fewer good jobs would be created here at home.

Once again, it looks like Americans are about to end up with a lousy return on investment, courtesy of Congress.

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