Democrats Eyeing Taxes On Stock Buybacks, Carbon Emmissions And CEO Pay

Democrats Eyeing Taxes On Stock Buybacks, Carbon Emmissions And CEO Pay

While markets have generally shrugged at Democrat plans to hike taxes on the ultra wealthy (who as we noted yesterday have already found loophole to avoid getting hit by the harshest provisions of the tax increases), with much of the compromise case scenario already priced into stocks, a new and unexpected wrinkle emerged: according to Bloomberg, Democratic lawmakers – never content with how much wealth they can and will redistribute – are now discussing a range of additional tax proposals targeting corporations and the wealthy — including levies on stock buybacks, carbon emissions and executive compensation, a wider set of measures than President Joe Biden had proposed to help fund a ramp-up in spending on social programs.

According to the report, one idea which could have a chilling effect on stock repurchases which as a reminder is expected to serve as a source of up to $500 billion in stock demand in 2022 according to Goldman, is applying an excise tax on stock buybacks or treating them as taxable dividends to shareholders, according to two people familiar with Senate Finance Committee discussions. Corporate deductions for executive pay could also be limited, and chief executive officers could face an excise tax if their pay exceeds that of an average company worker by a certain ratio, Bloomberg sources said.

The expanded menu of tax options would give Democrats more flexibility as they undertake thorny negotiations among themselves over how to pay for a proposed $3.5 trillion of long-term investments in child care, education and other social programs. Biden and Democratic lawmakers have repeatedly made clear that their plans will not raise taxes on those making less than $400,000 a year.

Among the various other proposals in the mix which have previously been proposed by Biden or by Senate Democrats include raising the 21% corporate rate, increasing taxes on overseas company income and raising both the top individual income tax rate to 39.6% as well as the capital gains rate for high-income investors.

Luckily, there is a huge gap between what Democrats want, and what they can actually achieve, and it is not clear which parts could pass muster, given the views of Senator Joe Manchin of West Virginia, a pivotal Democrat who this week blasted the $3.5 trillion size of the legislation and called for a pause in its consideration given concerns about inflation and debt.

In a paper written earlier this year, law professors Daniel Hemel and Gregg Polsky wrote that treating corporate buybacks and dividends similarly for tax purposes would raise $70 billion to $80 billion a year, “making it a potentially attractive add-on to future budget bills that strive for revenue neutrality or deficit reduction.” 

However, in a world where the Fed is expected to monetize 100% or more of the deficit for the foreseeable future, it is unclear why Democrats don’t just instruct Powell to simply print moar and offset any budget shortfalls with even more QE…

Tyler Durden
Fri, 09/03/2021 – 09:59

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