“It is reasonable to assume that companies would redirect some of their stock buyback resources to increase their dividends or reduce their debt,” said Newman at Fort Pitt Capital. “For companies who continue to use the stock buyback approach, the result will not likely be lower-cost goods and services.”
Sizemore at Interactive Advisors and Sizemore Capital Management compared the buyback tax to the reduction in dividend taxes that came with the Jobs and Growth Tax Relief Reconciliation Act of 2003, during the George W. Bush administration. That caused “a huge spike in popularity” of dividend-paying shares, he said. “History could repeat itself here.”
Nevertheless, others are dubious. The act doesn’t change the playing field enough to make much difference, they said. “I’m not sure about the impact of the 1% tax, if there is one,” mused Pisano at Biondo Investment Advisors.
Tax implications
What’s more, the act will also provide some $80 billion in new spending for the IRS over the next 10 years, more than half of which is intended to beef up the auditing—particularly of high earners (companies and individuals who make more than $400,000 annually).
But should advisors change the ways they help their high-earning clients prepare their taxes? Not necessarily.
“We are expecting some of this money to trickle down to better enforcement and oversight of corporate retirement plans,” said Freeberg at JRF Asset Advisors. But he expects no changes in how advisors help high-earning individuals.
That’s partly because the IRS has been so cash-strapped that the increased funding will be a drop in the bucket. “Even with an influx of $80 billion in new funding, the agency’s ability to transform itself is far from assured,” reported the Washington Post.
Pisano at Biondo Investment Advisors agreed. “There’s just not that much that was signed into law that is going to significantly alter the tax planning we have been doing and will continue to do,” he said..
Instead, he’s more attuned to the expiration of much of 2017’s Tax Cuts and Jobs Act, which could raise tax rates in 2025.