A company which buys back its own stock invests in itself, and is functionally no different than a company investing in any other kind of asset. This increases the price of the remaining shares, and in turn increases the capital gains owed by investors when the asset is sold. If the stock buybacks drive EPS growth, and enable larger dividend payments, those higher dividends will be taxed as well. Corporate income tax, capital gains, and taxing dividends as income all represent cases of double taxation, not tax avoidance.
The heaviest tax burden is levied on the highest income earners, both proportionally and in absolute terms. As you become increasingly wealthy it's true that most or all of your income might be related to long-term capital gains or dividends, and those are taxed at separate rates. Even in that case, though, the income is still being taxed twice, once at the corporate level and once at the point of distribution or sale.
On a non-taxation note, buybacks have increasingly become a tool to artificially drive stock price in recent years. Its actually been pretty negative.
Debt levels in corps are increasingly higher, using leverage to buy back stock, then you have those same companies sucking on the corporate welfare stream from the fed. Its referred too as a financial engineering tool at this point by the c-suite. The time you are referring to where it was more positive than just a tool to drive price artificially higher is prior to the SEC changing the rules in 1982. Artificially pumping the share price when the company isn't actually doing any better, and now were at what, a PE Ratio of >35 and since that rule change in 1982 prices per share is 6x for the same profits back then.
Then you have companies spending more on buybacks rather than R&D or actual dividends because it pumps stock prices and with the huge increase to C-Suite compensation tied to stock price its incentivised and its not sustainable, enter corporate welfare.
Stock buybacks need to get regulated again by the SEC like they were prior to 1982, were not seeing healthy, sustainable buybacks.
"Income is still being taxed twice, once at the corporate level and once at the point of distribution or sale."
I am sure the states are similar as Canada, you make it sound as if its taxed at more because it gets taxed twice, but that's not true, at-least not in Canada. The tax concept integration works, for the most part The idea being that there should be little to no difference in overall income tax paid, personal + corporate compared to just earning it personally. I won't go through all the tax rates, federal abatements, provincial abatements, dividend tax credits, etc. but you get the point. Its taxed twice, yes but the net is the same and usually lower than if you just paid it personally since the huge benefit is obviously tax deferral.
This post was edited by SBD on Mar 21 2025 08:00am