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

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.