Mark Cuban urges higher taxes on share buybacks to boost investment and reduce inequality by 2030

In the ongoing debate over corporate finance and taxation, proposals to impose higher taxes on share buybacks have gained traction, potentially reshaping how companies allocate capital and influence broader economic outcomes. Such measures could encourage firms to redirect funds towards productive investments rather than repurchasing their own stock, addressing concerns about income inequality and short-termism in markets.

The Rationale Behind Taxing Buybacks More Heavily

Share buybacks, where companies repurchase their outstanding shares, have become a favoured method for returning capital to shareholders. In recent years, these repurchases have surged, with estimates suggesting they exceeded $1 trillion in certain periods following major tax reforms. Proponents of increased taxation argue that buybacks disproportionately benefit executives and wealthy investors, often at the expense of long-term growth initiatives like research and development or wage increases.

A key argument for higher taxes on buybacks stems from their tax efficiency compared to dividends. Under current U.S. rules, buybacks allow shareholders to defer capital gains taxes until they sell, unlike dividends which are taxed immediately. This disparity has led to calls for parity, with some suggesting that elevating the tax burden on repurchases could generate substantial revenue—potentially up to $200 billion over a decade—for public programs while nudging corporations towards more equitable capital distribution.

Historical data illustrates the trend: following the 2017 corporate tax cuts, which reduced the rate from 35% to 21%, buybacks accelerated dramatically. Analysis from the Center on Budget and Policy Priorities indicates that rather than boosting worker wages as anticipated, much of the windfall fuelled repurchases, highlighting a mismatch between policy intent and actual outcomes. As of data available up to 2025-08-19, this pattern persists, with buybacks often cited as a tool for inflating earnings per share without underlying business expansion.

Economic Impacts of Enhanced Buyback Taxation

Imposing steeper taxes on buybacks could alter corporate behaviour in several ways. For instance, a 1% excise tax introduced in recent legislation has already prompted discussions on its effects. Models from the Penn Wharton Budget Model suggest that such taxes might reduce repurchases by encouraging firms to retain earnings or issue dividends instead. This shift could increase immediate tax liabilities for shareholders but also promote greater investment in operations, potentially fostering innovation and job creation.

From an investor perspective, higher buyback taxes might dampen short-term stock price boosts typically associated with repurchase announcements. Research published in the Journal of Financial Economics, drawing on data from the mid-1980s onwards, shows that tax cuts have historically correlated with rising buybacks, but at the cost of diminished economic expansion. If taxes rise, companies might prioritise capital expenditures, which could yield higher long-term returns but introduce volatility in the interim.

Critics, however, warn of unintended consequences. Some analyses, including those from the Bipartisan Policy Center, note that buybacks serve as an efficient capital allocation tool, especially when firms lack profitable reinvestment opportunities. Taxing them more could inadvertently increase costs for tax-exempt investors, such as pension funds, and might not fully achieve dividend-buyback parity without broader reforms.

Global Perspectives and Policy Comparisons

Internationally, taxation of buybacks varies, offering lessons for potential U.S. reforms. In India, recent amendments via the Finance Act (No. 2) 2024 shifted the tax burden from companies to shareholders, treating buyback proceeds as dividends subject to rates up to 39%. This has sparked debates on negative second-order effects, such as reduced liquidity or altered investor strategies, as noted in posts found on X discussing high taxation’s impact on corporate decisions.

Closer to home, the U.S. excise tax on repurchases, detailed in IRS guidance from April 2024, applies to public companies and aims to curb avoidance tactics. Grant Thornton’s insights highlight how this could raise federal revenues modestly, though behavioural responses—like increased earnings retention—might offset some gains through deferred capital gains taxes.

Analyst-led forecasts suggest that if buyback taxes were to double or more, corporate spending on repurchases could decline by 10–20% within two years, based on elasticities observed post-2017 reforms. This projection, derived from dynamic general equilibrium models in academic literature, assumes firms adapt by boosting dividends or investments, potentially lifting GDP growth by 0.5% annually in optimistic scenarios.

Investor Sentiment and Market Implications

Sentiment among investors, as gauged by credible sources like Morningstar, remains mixed. Recent surges in buybacks amid economic uncertainty reflect corporate confidence in cash flows, yet there’s caution over policy shifts. For example, Howard Silverblatt of S&P Dow Jones Indices has noted that while buybacks bolster portfolios in bull markets, they signal caution when paired with stagnant dividend growth, pointing to potential headwinds from tariffs or global competition.

In terms of valuation, higher taxes could compress multiples for buyback-heavy sectors like technology and finance. Historical trends show that from 2018 to 2022, firms with aggressive repurchase programs outperformed peers by 5–7% annually, but this edge might erode under stricter taxation. Investors should monitor earnings calls for shifts towards dividend policies, which could appeal to income-focused portfolios but introduce new tax considerations in non-qualified accounts.

Balancing Incentives and Equity

Ultimately, the push for heavier buyback taxation seeks to align corporate incentives with societal goals. By discouraging what some view as financial engineering—evidenced by estimates that 43% of 2017 tax savings went to buybacks and dividends, per New York Times analysis of Morgan Stanley data—it could foster a more inclusive economy. Yet, as the Baker Institute’s 2023 research cautions, buybacks aren’t inherently detrimental; they can enhance shareholder value when executed judiciously.

For policymakers, the challenge lies in calibrating taxes to avoid stifling market efficiency. Proposals like those from Americans for Financial Reform advocate for incremental increases to fund critical programs, projecting nearly $200 billion in revenue while strengthening the real economy. As debates evolve, investors would do well to assess how such changes might ripple through portfolios, prioritising firms with robust internal growth prospects over those reliant on buyback-driven returns.

In a landscape where buybacks have quadrupled since the early 2000s, per long-term data, the case for reform rests on evidence of their role in exacerbating wealth gaps. While dry humour might suggest that taxing buybacks is like charging firms for eating their own cake, the serious implication is a potential rebalancing towards sustainable capitalism.

References

• Americans for Financial Reform. (n.d.). Fact sheet: Taxing stock buybacks strengthens the real economy and raises nearly $200B for critical programs. https://ourfinancialsecurity.org/reports-publications/fact-sheet-taxing-stock-buybacks-strengthens-the-real-economy-and-raises-nearly-200b-for-critical-programs
• Baker Institute. (2023). Understanding stock buybacks: Should we tax them? https://www.bakerinstitute.org/research/understanding-stock-buybacks-should-we-tax-them
• Bipartisan Policy Center. (n.d.). How the U.S. taxes stock buybacks and dividends. https://bipartisanpolicy.org/explainer/how-the-u-s-taxes-stock-buybacks-and-dividends/
• Business Insider. (2025, August). Mark Cuban: Higher taxes on stock buybacks can shift capital to investments. https://businessinsider.com/mark-cuban-higher-taxes-stock-buybacks-investment-dividend-2025-8
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• Grant Thornton. (2024). IRS issues robust guidance on stock buyback tax. https://www.grantthornton.com/insights/alerts/tax/2024/flash/irs-issues-robust-guidance-on-stock-buyback-tax
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• Penn Wharton Budget Model. (2023). The excise tax on stock repurchases: Effects. https://budgetmodel.wharton.upenn.edu/issues/2023/3/9/the-excise-tax-on-stock-repurchases-effects
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