After the Joe Biden government did an Ethan Hunt and pulled off a Mission Impossible-style share buyback tax on US Corporates last year, there has been a lot of chatter around the potential fallout from the tax. All kinds of outcomes have been plotted: increased tailwinds for dividends; a marked slowdown in the buyback activities of index juggernauts like Apple, Meta and Exxon; or the (more benign) ‘a 1% tax wouldn’t really throw a spanner in the works of Corporate America’.
Corporates appeared to have accepted the 1% tax in their stride last year. There wasn’t too much fuss about it (despite this being the first ever tax on share buybacks in the US).
The muted corporate reaction has perhaps encouraged the Democrats to go bigger. Afterall, the most difficult step in taxation is the introduction; raising it from thereon is ─ to borrow a phrase from Ethan Hunt ─ ‘a walk in the park’.
Or so appears to be the line of thought of the Biden Government with recent whispers from the White House indicating that a quadrupling of the Share Buyback Tax is on the cards.
So as the Q2 earnings season gets underway in the US, apart from the usual mix of earnings surprise’s and forward guidance’s, it will be interesting to observe management tone around one more specific area: Share Buybacks.
