After the House passed SECURE 2.0 in a major bipartisan win for Americans saving for retirement, Democrats are now offering a new tax that will have the harshest effects on seniors and other savers. 

Democrats are threatening companies that return value to retirees or to 401(k) plans or to pension plans with a punitive tax. Their unvetted stock buybacks tax is a crippling tax that reduces retirement security for American seniors.

Key Background:

Unvetted stock buybacks tax will reduce retirement security for seniors.

• As we enter a recession, 401k plan participants and people with IRAs have already lost roughly up to $2 trillion dollars, and now Democrats are pushing a massive tax increase.
• This tax would harm the 58 percent of Americans who own stock and more than 60 million workers invested in a 401K. 
• A tax on stock buybacks harms all shareholders and employees with an individual retirement account or 401k–including union pensions. Yet AARP, which claims to support seniors’ interests and helping more people save for retirement has even supported the bill (despite the negative impact it would have on seniors.)

Most corporate stocks are held by retirement plans.

• The largest share of corporate stocks are held by retirement plans, insurance companies, and nonprofits. 
• “Democrats have not vetted the buyback tax and it will be a compliance nightmare for American companies. U.S. employers will have to spend significant time and money on white-shoe law firms to comply. These costs will be passed on to households,” Americans for Tax Reform says.
• Democrats claim that stock buybacks are a windfall for corporate executives and take away money from pro-growth investment, but according to one analysis, from 2007 to 2016 during a period of increased buyback activity, investment in businesses increased substantially.

Democrats’ stock buyback tax puts America at a disadvantage to China.

• A buyback tax would put Americans at a competitive disadvantage against China, which does not have a buyback tax.
• Americans for Tax Reform notes, when India imposed a buyback tax, they became less competitive with China as noted in this piece. An analyst quoted in the piece said, “Overall, average investor return is likely to decline by around 1 percent due to this tax.”

Companies use stock buybacks to supplement investing in capital.

As the Tax Foundation points out: “A large body of evidence supports the idea that companies generally only consider stock buybacks when they have exhausted their investment opportunities and met their other obligations, meaning it is residual cash flow that is used for buybacks. In fact, stock buybacks can supplement capital investments, as they can help reallocate capital from old, established firms to new and innovative firms.”