Shareholders should question the rationale for share buybacks
Rigorous justifications for the activity are difficult to come by, so shareholders should subject repurchase proposals to greater scrutiny before granting approval
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IN HIS 2023 State of the Union address, US President Joe Biden proposed quadrupling the tax on corporate share buybacks to 4 per cent “to encourage long-term investments’’.
Explaining the rationale for the move, national economic adviser Lael Brainard said the tax “will encourage companies to invest in workers and the US economy, rather than paying out stock buybacks to wealthy investors”.
However, famed US investor Warren Buffett – obviously one of the “wealthy investors” – said in his 2023 letter to shareholders that anyone who criticised stock repurchases is “either an economic illiterate or a silver-tongued demagogue”.
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