Or he could place a withholding tax on the corporation to cover the amount of the the stock’s gain as a result of the buyback. That would mean tax-exempt investors, such as pension funds that own significant amounts of the stock market, would indirectly be paying tax they don’t owe.
Buybacks Unlikely To Stop
But Rubio’s plan isn’t enough to turn corporations off from buybacks, one of the favorite ways to spend extra cash, said Jeffrey Winkleman, partner-in-charge of corporate taxation at accounting firm Marcum.
“It’s not like all of a sudden there will be no buybacks or dividends,” he said. If Rubio’s plan became law “you might have some companies thinking twice, but you’re not going to see it stop."
It also wouldn’t do what Rubio wants, said Kyle Pomerleau, an economist with the right-leaning Tax Foundation.
“If the company could use the money to buy back stock or invest in a project with a 2% rate of return, 2% might not be enough to make it worth it,” he said.
So far, companies have shown they want to spend their tax cut on buybacks. Several large companies pursued big-dollar buybacks in the first year after the tax law was enacted. Qualcomm Inc. saw one of the biggest jumps, doing nearly 17 times the repurchases from the prior year for a total of $22.6 billion. Apple Inc. increased buybacks 306% to $73.1 billion in fiscal year 2018. Google’s parent company, Alphabet Inc., nearly doubled its share repurchases from a year earlier, totaling nearly $9.1 billion.
But share buyback numbers are not out of line with historical trends, according to a paper from hedge fund AQR Capital Management Founder Cliff Asness.
Buybacks in 2019 will likely still be strong, Kristina Hooper, the chief global market strategist at Invesco, said. Tax policy matters, she said, but companies are focused on allocating money where it makes the most sense for them.
Markets are worried about Rubio’s plan, as evidenced when stocks dragged in March following the Florida Republican’s tweet about his buyback plan.