NewportBarGuy: And that is why stock buybacks should be banned. It's theft, plain and simple.

*blink*

From whom?

From shareholders who willingly sell their stock back to the company (without ever having to know or care who was on the other side of the trade) at a higher price due to the company willingly creating more demand for the stonk by buying back its shares?

The shareholders who hold the stonk and who also benefit from the demand induced by their own Board of Directors (who are literally elected by the shareholders!) and whose job it is to increase shareholder value?

Extended example:

Company XYZ trades at $10. It has one million shares outstanding. It makes a million bucks after taxes, or a buck a share. Absolutely nothing else changes in the business. They own a money printer that guarantees $1M/year (no more, no less!) out of thin air.

Dividends: XYZ declares a $1/share dividend. Next year, XYZ trades at $10, and the shareholders pay the IRS $0.15 (15% of their $1 dividend.) Every shareholder pays taxes on the money the company gave back to them.

Buyback: XYZ spends that $1M by buying back 100,000 shares at $10. Next year, there are 900,000 shares outstanding, the business is still earning $1M/year. XYZ trades at $11.11 because next year it's going to print $1M but there are only 900,000 shares, or $1.11/share. (Capgains: Shareholders could sell next year at $11.11 and pay taxes on that, or do literally nothing and pay no taxes, at their own discretion. Shareholders having a crappy 2023 might pay zero tax on their gains in XYZ, and shareholders having an awesome 2023 might hold XYZ until 2024, when, after printing $1.11/share, they buy back another 90,000 shares at $11.11, after which there are 810,000 shares remaining and the $1M/year profits are worth $1.23/share, and XYZ trades at $12.34 per share.)

You can argue (and I'd be on your side) that buybacks are economically equivalent to dividends, except that in the case of buybacks, the taxes owed by the individual shareholder can be deferred indefinitely, and that this form of tax arbitrage shouldn't exist in the tax code.

But under the law as written, the taxpayer's not being ripped offl; it's tax avoidance (and/or deferral), but not tax evasion. (Again, if you wanna argue that those laws should be reformed to reduce opportunities for tax arbitrage, I'd probably be on your side.) But right now, if XYZ chooses to return its after-tax profits to its shareholders in the form of buybacks instead of dividends, the individual shareholder of XYZ comes out ahead because they can optimize the timing of their individual buying/selling depending on how badly they need to harvest capital losses.

NewportBarGuy: So, until they hop on board, they should be punished as much as possible. Options above $1million should be taxed at 99%. We should return to the 905 tax bracket for top earners.

That's actually a really good point.

I'm generally on the side of stock option grants because they're a way to incentivize employees to work with the company, not against it. (i.e., you'll make more money as employee if your company gets taken over for a gazillion dollars than if you get a promotion to middle management.)

But the whole reason stock option grants became a thing was because the company couldn't deduct (as an expense against the company's budget) salaries over $1M to the CEO/CFO/etc. This goes way back to the 90s, but Google is farking useless for history and just gives you current-ish results.

https://www.bdo.com/insights/tax/annual-effective-tax-rate-considerations-of-section-162(m)

But the gist of 162(m) as originally written in 1993 (FARK YOU GOOGLE I finally found it!)

https://www.propublica.org/article/the-executive-pay-cap-that-backfired

...was "Uncle Sam says that paying more than $1M in salary to the head honchos of the company is Officially Frowned Upon^TM" and the corporate world's response was "Fine, we'll pay the CEO $900,000 in Federal Reserve Notes and $99,999 in stonk options dated a few years out!"

If the company fails or just lumbers along, returning profits to the shareholders via boring-ass dividends (boring ass-dividends?) but doesn't go full rocketship of exponential growth, the CEO gets his $900K base pay before the shareholders kick him out and replace him with someone more rapacious. If the company succeeds beyond its wildest dreams, (or the CEO succeeds in selling it to some private equity vulture group for a 20-50-100% premium over the current trading price) the shareholders get their exit, the CEO gets the full payout. I'm not sure at what rate the CEO pays taxes on it (because I'm at a point in my life and career to have closed off all avenues that could possibly put me in a situation to care!), but I'm pretty sure they aren't paying the 37% + 3.8% NIIT top marginal rate.

As for your post itself, I'd say 99% is exorbitant but I'd also think you're just citing it rhetorically. And almost nobody wealthy enough back in the 1950s actually paid the 90.5% top marginal tax rate because damn near everything imaginable was deductible against income back then.

Having said that, you and I might disagree on the tax rate - but I think we do agree on the need for fundamental tax reform. 37% + 3.8% NIIT might be a good starting point. A new tax bracket of *roll 3d8 and add it to that 37% marginal rate* for income over *roll 1d6 and multiply by $10M* might pass the House and Senate. Might not. Depends on how motivated the legislature is.

As motivation, were I the purple-winged Emperor of Earthquestria, I'd propose that both teams roll their dice three times. Then the (R) team takes the lowest of their three rolls as their starting point, the (D) team takes the highest of its three rolls as their starting point, and we lock the House Committee on Ways and Means into a Faraday cage containing a bunch of NERF weapons, no washrooms, and no food.

The door does not unlock until the Committee sends a bill to Congress.




Unbeknownst to the Committee, there are very tiny cameras in the corners of the room that can see through the tiny gaps in the Faraday cage that prevents any of them from communicating with the outside world. Uncle Sam is charging $1/hour per viewer to watch the livestream.

Whatever bill they produce is irrelevant. If they produce a bill at all. The national debt is paid off even if it goes as well as this re-enactment from a more innocent timeline.