Corporate America is flush with cash and buying back a near record amount of stock this year. President Biden wants to increase the taxes on those buybacks. Biden will reportedly propose in his State of the Union speech tonight to lift the tax companies pay when they buy back their own stock, to 4% from 1%. The theory is that imposing additional taxes on buybacks will encourage companies to invest in hiring more people or make capital expenditures (more plants, buildings, or technology) rather than repurchase their own stock. While the validity of that theory is debatable, there’s no doubt companies appear to be embarking on a buyback spree. Many observers anticipate 2024 could be a near-record year for buybacks. Why buybacks are ramping up After a record 2022, when $950 billion in stock was bought back, 2023 was a disappointing year, due largely to a lack of earnings growth. But 2024 and 2025 are looking like near-records. Buybacks: ramping up? (executed buybacks) 2024 (est.) $925 b. 2023 $815 b. 2022 $950 b. 2021 $919 b. 2020 $538 b. 2019 $749 b. Source: Goldman Sachs Jeffrey Yale Rubin at Birinyi Associates estimates that there companies announced $187 billion in buybacks in February alone, second only to the record of $225 billion announced in February 2022. “Solid earnings growth will be the primary tailwind to buybacks while elevated valuations and policy uncertainty will be headwinds,” Goldman Sachs said in a recent report. Goldman recently raised its 2024 buyback forecast to $925 billion (up 13% year-over-year) and $1.075 trillion in 2025 (up 16% year-over-year). Goldman noted that a good chunk of the buybacks are being driven by record profits in big tech: “We expect buyback growth in 2024 will be driven largely by the mega-cap tech stocks,” the bank said. Indeed, Goldman noted that the Magnificent 7 by themselves accounted for 26% of S & P 500 repurchases in 2023. Corporations prefer stock buybacks Corporate America has wide latitude on what it does…
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