Yes this is a proposed increase. But there is an existing tax imposed last year.
The president proposed an increase to 4% in his SOTU speech.
There are two issues that I can see.
First-Should our nation’s government be involved in how corporations utilize their profits? Or stated another way–Should there even be a buyback tax.
A corporation buys back shares when it sees no profitable investment opportunities alternatives. Proponents of stock buybacks that a share repurchase is simply returning money to shareholders—just like paying a dividend, but more tax efficient.
Those opposed to stock buybacks believe buybacks are largely utilized to boost CEO’s renumeration. Yes stock holders benefit. But couldn’t stockholders benefit if profits were utilized to increase employee paychecks who then spend more on consumption which flows to the corporate bottom line.
Harvard claims stock buybacks are dangerous to our economy:
That debt has resulted in zombie corporations.
Second-According to DW article below they make up 16% of US firms according to one Morgan Stanley calculation.
Will the buyback tax end these zombie corporations? In bankrupting the zombies, will that money will flow to profitable ventures? Will the FED interest rates accomplish the ridding of zombie corporation more effectively?
How exactly a company earns ‘zombie’ status is ill-defined. Generally, the name refers to firms that roll over their debt with continued access to credit markets, without being able to pay off their debt interest.
These firms stumble along, just covering operating expenses but soulless as far as profitability and productivity are concerned.
America is not alone in its corporate rot. Zombies account for more than 20% of Europe’s companies.
Among their ranks are many firms once synonymous with luxuriant American capitalism: Macy’s, Boeing, Delta and American Airlines.
What seemed like a routine—former Facebook executive and venture capitalist interviews on CNBC—devolved into an uncomfortable and tense conversation that shed light on one of the biggest subversions of capitalism.
Chamath Palihapitiya—said executive and venture capitalist—spoke with CNBC’s Scott Wapner last Thursday and questioned the practice of propping up “zombie companies.”
Wapner, appearing agitated, asked Palihapitiy in an incredulous manner, “Are you suggesting that airlines should fail?” Paligapitiya calmly answered, “Yes.”
Palihapitiy pointed out, “On Main Street today, people are getting wiped out. Right now, rich CEOs are not, boards that have horrible governance are not. People are.” He added, “What we’ve done is disproportionately prop up poor-performing CEOs and boards, and you have to wash these people out.”
He explained to Wapner that it’s not the average person who is hurt when a company files for bankruptcy. Most of the investors are big-money institutions, hedge fund guys and wealth people.