U.S. President Joe Biden will call on Congress to impose a 20% minimum tax on billionaires and quadruple the new 1% tax on corporate stock buybacks in Tuesday’s State of the Union Address, according to the White House.
The proposals, unveiled ahead of the annual speech, are widely seen as longshots to clear Congress with a Republican majority in the House of Representatives.
President Biden will propose quadrupling the new 1% tax on stock buybacks in his State of the Union address.
Biden will also renew his call for a “billionaire minimum tax” of 20% on the annual income of households with a net worth of more than $100 million.
Biden’s claim billionaires currently pay income tax at an 8% rate is in dispute; while corporate buybacks announcements set a record in January.
Both proposals face long odds of Congressional approval with a Republican majority in the House.
Corporate buyback announcements surged to a monthly record of $132 billion in January despite the 1% tax that went into effect on Jan. 1 as mandated by the Inflation Reduction Act passed last year. Share repurchases by S&P 500 companies totaled $981.6 billion in the year through September, yielding nearly 3.3% of their market capitalization. S&P 500 share buybacks increased about 10% last year.
Had the 1% buyback tax been in effect last year, it would have reduced third-quarter S&P 500 operating earnings by 0.46%, according to S&P Dow Jones Indices analyst Howard Silverblatt.
Last month, the White House criticized Chevron’s (CVX) $75 billion authorization for share repurchases. “For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it,” a White House spokesman told Bloomberg. “We continue to call on oil companies to use their record profits to increase supply and reduce costs for the American people.”
Chevron said it repurchased some 4% of its outstanding shares in 2022, ending the year at an annual repurchase rate of $15 billion. Chevron has budgeted $14 billion in 2023 capital spending, and projects a production increase of up to 3% this year.
Biden’s call for a 20% “billionaire minimum tax” revives a proposal made last year in the administration’s fiscal 2023 budget plan. It would require households with a net worth above $100 million to pay a minimum tax of 20% on income including unrealized gains. According to the White House, billionaires pay an average tax rate of 8.2%, based on a 2021 study by administration economists. Others dispute the figure as too low.
The White House has framed the billionaire tax and increased stock buyback tax as deficit reduction measures. It estimated last year the billionaire tax would generate $360 billion in tax receipts over a decade. The 1% tax on share repurchases will raise nearly $74 billion over 10 years, the Congressional Budget Office projects. The U.S. ran a $1.38 trillion budget deficit last year.
Biden also planned to use the State of the Union address to laud his administration’s efforts to fuel economic growth with public investments while regulating industries to promote competition. The White House singled out the Consumer Financial Protection Bureau’s proposed new limits on “junk” bank and credit card fees. Biden has also proposed a law banning resort fees and “excessive” concert ticket charges, among others.
The White House said Biden would also announce issuing “proposed guidance” to ensure only construction materials of U.S. origin, “from copper and aluminum to fiber optic cable, lumber, and drywall” are used on all infrastructure projects supported by federal funding. The Buy American Act was only previously enforced for iron and steel and only for some federally funded projects, according to the administration.
Biden is also expected to stress efforts to limit healthcare costs, and to call on Congress to extend Medicare’s new $35 cap on monthly out-of-pocket insulin costs to all Americans.
The president’s second annual address before Congress comes as he remains moderately unpopular in opinion polls despite an unemployment rate at a 53-year low. Billionaires and Big Business also haven’t fared well in surveys lately.