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The Inflation Reduction Act—the blockbuster tax and climate reform bill passed by the Senate earlier this week—includes several provisions aimed at forcing corporations to pay a fairer share of their taxes. These include a rule requiring large corporations to pay a minimum of 15 percent of their profits in taxes, $80 billion in additional funding for the IRS to ramp up tax enforcement, and an extension of the 2017 tax bill’s limits on the use of business losses to shrink tax bills.
But there’s another change worth diving deeper into. If passed, the IRA will impose a 1 percent tax on stock buybacks, a tactic used by corporations to increase their stock price. Buybacks continue to grow in popularity: In 2022, corporate America is projected to spend a record $1 trillion on them. They’ve long caused consternation among Democrats, who accuse corporate executives of using buybacks to avoid taxes and to enrich themselves instead of better compensating their employees: a “sugar high for corporations” and a “tax scam to reward CEOs while laying off workers,” in the words of Massachusetts Sen. Elizabeth Warren.
To understand why Warren and other Democrats have targeted buybacks, it’s helpful to first dig into how they work, and why corporations love them. A buyback is when companies purchase shares of…
