Democrats add stock buyback tax to Inflation Reduction Act: What to know

Inflation Reduction Act to impose 1% excise tax on corporate stock buybacks

The sweeping climate, health care and tax bill that Senate Democrats passed Sunday includes one of the biggest tax hikes in decades, including a new levy for corporations that repurchase their own stock. 

The Inflation Reduction Act of 2022, which passed along party lines with Democrats employing the budget reconciliation process, would raise an estimated $739 billion over the next decade, with the revenues going toward initiatives designed to combat climate change and curb pharmaceutical prices, as well as efforts to reduce the nation's $30 trillion debt. 

Chuck Schumer

Senate Majority Leader Chuck Schumer of New York speaks during a news conference after the weekly Democratic policy luncheon on Capitol Hill in Washington Dec. 7, 2021.  (AP Photo/Carolyn Kaster / AP Newsroom)

It includes about $433 billion in new spending, while roughly $300 billion of the new revenue raised would go toward paying down the nation's deficit.

Some of the main revenue raisers stem from new levies on wealthy businesses, including a 1% excise tax on corporate stock repurchases that is poised to take effect in 2023. Democrats, who estimated this new levy will raise about $74 billion over the next decade, are hoping to slow companies' tendency to buy back their own stock from investors with the tax.


New York Stock Exchange

People walk outside the New York Stock Exchange July 25, 2022, in New York City.  (Spencer Platt/Getty Images / Getty Images)

Companies have been allowed to buy their own shares since 1982, and the practice has since become commonplace on Wall Street. In 2019, stock buybacks hit a record $1 trillion, according to the SEC. Buybacks already hit a record $281 billion in the first three months of 2022, according to S&P analyst Howard Silverblatt. However, they were down 17.4% in the second quarter.

"I hate stock buybacks," Senate Majority Leader Chuck Schumer, D-N.Y., said. "I think they are one of the most self-serving things that corporate America does." 

The bill also imposes a 15% minimum tax on corporations based on profits they publicly report on their financial statements to shareholders. The minimum book tax would only apply to companies that reported more than $1 billion in income. Democrats said the levy would affect around 200 of the country's largest corporations with profits exceeding $1 billion and that pay less than the current 21% rate for businesses.

Capitol Hill

Night falls at the Capitol in Washington Dec. 2, 2021. (AP Photo/J. Scott Applewhite / AP Newsroom)

Experts expect the two taxes to drag on 2023 earnings, with Goldman Sachs forecasting a 1.5% decline per share of S&P 500 companies. The earnings decreases are expected to hit industries like health care and IT because of the low effective tax rate.

UBS strategists led by Solita Marcelli, meanwhile, projected the new taxes would have a "very minimal 1% drag on S&P 500 earnings per share, although some companies will be more affected than others."


The bill now heads to the House for a vote that could happen as soon as Friday. It will then be signed into law by President Biden.