President Joe Biden revived his calls for higher taxes on billionaires and proposed quadrupling the levy on corporate stock buybacks during his State of the Union address Tuesday night.
"I’m a capitalist. But just pay your fair share," Biden said in the speech. "And I think a lot of you at home agree with me that our present tax system is simply unfair."
Neither proposal is likely to garner much support in a deeply divided Congress, with Republicans now in control of the House.
"Some may wonder why the president will offer these ideas to a divided Congress where legislative prospects are bleak," said John Gimigliano, principal-in-charge of the federal tax legislative and regulatory services group at KPMG. "The answer of course is that part of the president’s job is to keep these ideas alive in the minds of voters, even if not in the minds of Congress."
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The White House has provided few details about the latest iteration of the proposal, but said on Tuesday that it would set a minimum tax for the wealthiest Americans.
"Reward work, not just wealth. Pass my proposal for a billionaire minimum tax," Biden said in the speech. "Because no billionaire should pay a lower tax rate than a school teacher or a firefighter."
The president first floated a minimum tax on the wealthiest Americans in 2022, calling for a 20% rate that would hit both the income and unrealized capital gains of U.S. households worth more than $100 million, or about 0.01% of Americans.
Under the proposal, the top sliver of U.S. households would be required to pay a tax rate of at least 20% on their full income, or the combination of wage income and whatever they made in unrealized gains. If a billionaire was not paying 20% on their income, they would owe a "top-up payment" that makes up the difference to meet the new minimum.
Because many of the ultra-rich derive their vast wealth from the soaring value of assets like stock and property — which are not considered to be taxable income unless that individual sells — they are able to legally store their fortunes and reduce their tax bite. Under current law, a gain is only taxed if and when the owner sells the asset.
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Households that were already paying 20% will not be required to pay an additional tax.
However, support for the levy petered out despite a Democratic monopoly in Washington amid some resistance from moderates within the party.
The newest proposal that Biden introduced in his speech is the quadrupling of a 1% levy on corporate stock buybacks. Democrats passed the tax last year as part of the Inflation Reduction Act in hopes of curbing businesses' tendency to repurchase their own shares from investors.
While companies slammed the penalty, the 1% fee is not expected to stop share repurchases because it is too low to act as a deterrent.
Many businesses, including ExxonMobil, Lowe's and MasterCard, have expanded programs or announced new ones to repurchase their stock this year.
For example, ExxonMobil distributed $29.8 billion to shareholders in 2022, including $14.9 billion in dividends and $14.9 billion of share repurchases. The company also increased and extended its share-repurchase program with up to $35 billion of cumulative share repurchases in 2023-2024.
Companies have been allowed to buy their own shares since 1982, and the practice has since become commonplace on Wall Street. In 2019, stock buybacks hit a record $1 trillion, according to the SEC. In the third quarter of 2022, buybacks among companies listed on the S&P totaled about $210 billion, down about 10% from the same period one year ago, according to S&P analyst Howard Silverblatt.
In the second quarter, companies spent about $220 billion, compared with roughly $281 billion in the first.
If the 1% tax had been in place during the third quarter, companies would have owed roughly $1.93 billion to Uncle Sam, according to The Wall Street Journal.
