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I explicitly stated in my response that behavior would change in response to tax policy changes. Why state that as if I didn't lead with that? There's 0 chance

I explicitly stated in my response that behavior would change in response to tax policy changes. Why state that as if I didn't lead with that? There's 0 chance that capital gains will drop from 1T to much less than 500B, or that buybacks go to 0. You think people will suddenly never sell their assets because the tax rate is higher? Dividends are already taxed at 20% for most people, yet companies still pay dividends. So why wouldn't they do buybacks at a 20% tax rate? Even if you cut projections in half, it's more than enough to fund. And it seems like you're not aware of the legislation. The budget bill brings back the SALT deduction, which will reduce tax revenue by 100B/year. That single provision alone is almost enough to fully fund the (pared down) bill.

refurb 5y ago
Money will shift from capital gains to other investments. Same with buybacks. I mean, that's why company's do buybacks today, they are tax advantaged. And I don't get why you'd tax stock buyback. That's a key way company's control their equity. Take $10B to buy $10B of their own stock and you'd make them pay $2B in taxes? Really?
- adam_arthur 5y ago
  Why tax anything? The free market always works better without taxes altering behaviors. The reason you tax buybacks is because you presumably care about wealth inequality. Buybacks by and large are mechanisms to increase the wealth of shareholders in a tax deferred manner. Dividends are not tax deferred. Ideally legislation would differentiate between "operational buybacks" where the buyback is actually justified by fundamentals and "indiscriminate buybacks" where the goal is to increase the value of the equity regardless of efficiency of the buyback. If a company has ROIC of 20% and a cashflow yield of 3%, it's pretty obvious that the buyback is indiscriminate and not rooted in any sense of the best allocation of capital. Of course impossible to differentiate these two things in legislation. But we can say 90% of the money allocated towards buybacks has nothing to do with operational efficiency, and acts more as a tax deferred transfer of wealth to shareholders. From the governments perspective, encouraging dividends over buybacks makes a lot of sense.
mrep 5y ago
Buybacks would absolutely go to 0. If a company has the option to return 100% of their net income through dividends or 80% of their net income through buybacks, why on earth would they do buybacks? US has the same top marginal dividend and cap gains rate so you'd make dividends much more tax efficient as a way to return money to investors [0]. [0]: https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient_distribution_of_earnings https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient...
- adam_arthur 5y ago
  Qualified dividends are taxed as long term capital gains, which is 20% for most. So if you have a 10% buyback tax, they are still more tax efficient than dividends. A 20% buyback tax puts them roughly at par. Dividends are "double taxed" today and buybacks are not. Not sure where you got your information, but it's wrong. Your source confirms what I'm saying, so maybe try reading it again.
  - mrep 5y ago
    No it does not because the person who they buy the stock back from has to pay cap gains still. The wiki page even has an example of how a dividend effectively reduces the shares price whereas buybacks effectively transfer the money into the share price which raises it over time proportionally and you will have to pay cap gains on it when you do sell.
    - adam_arthur 5y ago
      They pay the capital gain at some point, but the most wealthy tend to never sell. They tend to take loans against their assets and hold in perpetuity. I agree that raising the value of the share leads to a deferred taxable event, just a question of whether that deferral is permanent or not. Presumably it would be realized at some point. There is also a compounding effect to deferring gains, which leads to higher wealth concentration. e.g. you make gains on the portion of your investment that would be taxed, because dont owe the tax until you sell.

refurb 5y ago

Money will shift from capital gains to other investments. Same with buybacks. I mean, that's why company's do buybacks today, they are tax advantaged. And I don't get why you'd tax stock buyback. That's a key way company's control their equity. Take $10B to buy $10B of their own stock and you'd make them pay $2B in taxes? Really?

adam_arthur 5y ago
Why tax anything? The free market always works better without taxes altering behaviors. The reason you tax buybacks is because you presumably care about wealth inequality. Buybacks by and large are mechanisms to increase the wealth of shareholders in a tax deferred manner. Dividends are not tax deferred. Ideally legislation would differentiate between "operational buybacks" where the buyback is actually justified by fundamentals and "indiscriminate buybacks" where the goal is to increase the value of the equity regardless of efficiency of the buyback. If a company has ROIC of 20% and a cashflow yield of 3%, it's pretty obvious that the buyback is indiscriminate and not rooted in any sense of the best allocation of capital. Of course impossible to differentiate these two things in legislation. But we can say 90% of the money allocated towards buybacks has nothing to do with operational efficiency, and acts more as a tax deferred transfer of wealth to shareholders. From the governments perspective, encouraging dividends over buybacks makes a lot of sense.

mrep 5y ago

Buybacks would absolutely go to 0. If a company has the option to return 100% of their net income through dividends or 80% of their net income through buybacks, why on earth would they do buybacks? US has the same top marginal dividend and cap gains rate so you'd make dividends much more tax efficient as a way to return money to investors [0]. [0]: https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient_distribution_of_earnings https://en.wikipedia.org/wiki/Share_repurchase#Tax-efficient...

adam_arthur 5y ago
Qualified dividends are taxed as long term capital gains, which is 20% for most. So if you have a 10% buyback tax, they are still more tax efficient than dividends. A 20% buyback tax puts them roughly at par. Dividends are "double taxed" today and buybacks are not. Not sure where you got your information, but it's wrong. Your source confirms what I'm saying, so maybe try reading it again.
- mrep 5y ago
  No it does not because the person who they buy the stock back from has to pay cap gains still. The wiki page even has an example of how a dividend effectively reduces the shares price whereas buybacks effectively transfer the money into the share price which raises it over time proportionally and you will have to pay cap gains on it when you do sell.
  - adam_arthur 5y ago
    They pay the capital gain at some point, but the most wealthy tend to never sell. They tend to take loans against their assets and hold in perpetuity. I agree that raising the value of the share leads to a deferred taxable event, just a question of whether that deferral is permanent or not. Presumably it would be realized at some point. There is also a compounding effect to deferring gains, which leads to higher wealth concentration. e.g. you make gains on the portion of your investment that would be taxed, because dont owe the tax until you sell.