Biden expected to call for 400% increase in buyback tax

February 7, 2023 12:16 PM EST

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At tonight's State of the Union address, President Biden is expected to call for a 400% hike in the tax on stock buybacks. This could bring the current 1% rate to 4%.

While the announcement is expected to make waves, Cowen's Jaret Seiberg doesn't expect House Republicans to approve a higher buyback tax. However, he adds that the probability is not zero, given that the GOP has become populist.

Seiberg highlights the news is high impact risk for banks, which are active users of stock repurchases as a way to return capital to shareholders.

"The Federal Reserve in the years after the Financial Crisis pushed banks to favor stock buybacks over dividend increases because evidence from the months leading to the crisis showed banks were quick to cut buybacks but slow to slash dividends," Seiberg explains.

The analyst expects bank regulators will privately object to a higher buyback tax as it would encourage banks to raise dividends rather than repurchase shares.

By Staff

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