Despite the new 1% tax on share repurchases under the Inflation Reduction Act of 2022, U.S. public companies today are still using share buybacks to return cash to shareholders â including executives with Âequity-heavy pay â at unprecedented rates. This year has seen well over half a trillion dollarsâ worth of stock repurchased by S&P 500 firms in the first eight months of 2022 alone â including a $500 million plan by Kohlâs, one of more than two dozen public companies so far to announce buybacks since President Joe Biden signed the new tax into law on August 16, 2022. While there are signs of buyback slowdowns ahead, this is the highest reported level since the SECâs 1982 passage of Rule 10b-18 granting a safe harbor for buybacks, enabling them to rival (and in some years surpass) dividends as a way of returning cash to shareholders.
Wall Street loves buybacks, as is demonstrated in the Nasdaq Global Buyback Achievers Index and the Nasdaq US Buyback Achievers Select Index, as well as the S&P 500 Buyback Index. But do shareholders really benefit from them? What about other stakeholders, such as employees and customers? How do buybacks affect the long-term value of companies? What difference do buybacks really make, and to whom?