Republican Senator Marco Rubio is on a crusade to compel corporations to prioritize long-term growth over quarterly profits. That could make him some friends among Democrats, but he’s facing steep resistance from corporate stockholders and his own party.
The Florida senator wants Congress to encourage corporations to spend money that creates jobs and grow the economy. To do that, policymakers need to focus on promoting capital investment and de-emphasize the financial sector, he said in a report released Wednesday.
Prioritizing shareholders “tilts business decision-making towards returning money quickly and predictably to investors rather than building long-term corporate capabilities, reduces investment in research and innovation, and undervalues American workers’ contribution to production,” Rubio said in the report.
Break With Orthodoxy
The ideas represent a break with Republican orthodoxy at a time the party is struggling to define where it stands on economic issues. Rubio has also contradicted most of his party by saying the 2017 tax law helped corporations more than workers.
Rubio wants to make investors pay a higher tax when companies re-purchase their own shares, hoping it might prod corporations to spend more on capital investment and wages.
Rubio, who voted for the 2017 tax overhaul, has since blasted his party’s signature legislative achievement for benefiting corporations more than workers. The tax law gave companies five years of full expensing, which allows them to immediately write off investment in machinery. Rubio has said he wants to extend that tax break.
Rubio’s sentiment, if not his exact policies, is gaining traction among Democrats running for president in 2020. Senator Elizabeth Warren has proposed to levy a 7% surtax on large corporations, citing the large benefits they reaped from the 2017 tax law. Senator Kamala Harris proposed repealing the entire 2017 tax law. Senator Amy Klobuchar has proposed raising the corporate tax rate and redirecting that revenue to workers.
Buybacks were at their highest levels in decades following the 2017 tax overhaul that slashed the corporate tax rate from 35% to 21% and cut the rates to as low as 8% for companies to bring back offshore cash.
The mechanics of Rubio's plan are still under wraps, but there are at least a couple of ways he could encourage reinvestment rather than buybacks. One option is for the IRS to send shareholders a tax bill for the the appreciation in their holdings following the share buyback, but that would mean investors are likely paying a tax before they sell their shares and have realized that gain.