Biden’s Proposed Stock Buyback Tax Increase and Billionaire Minimum Tax Aren’t Happening—What Might? Wall Street’s Guide to Tax Law Changes in 2023

By: Stuart E. Leblang, Michael J. Kliegman and Amy S. Elliott

During his 2023 State of the Union (SOTU) speech February 7, President Biden repeated a line from his 2022 SOTU speech—calling on Congress to make corporations and the rich pay their “fair share” of taxes. While such a refrain is not surprising coming from a Democratic president, what is somewhat surprising is that, within the last year, lawmakers actually enacted a couple of new taxes that were designed do just that (namely, the 15-percent corporate alternative minimum tax on book income¹ and the 1-percent excise tax on corporate share repurchases—the so-called stock buyback tax²). Both new taxes only recently went into effect,³ but Biden already wants more.

Biden asked Congress to increase the stock buyback tax rate from 1 percent to 4 percent (to “encourage long-term investments”⁴) and to pass a minimum tax on billionaires (“no billionaire should be paying a lower tax rate than a schoolteacher or a firefighter”⁵). Biden’s Billionaire Minimum Income Tax (BMIT) first showed up in his proposed budget last year.⁶ The buyback tax increase is in part a response to “mega-buybacks”⁷ recently announced by major oil⁸ and tech⁹ companies—buybacks that Biden characterized as “rewarding . . . CEOs and shareholders.”¹⁰

Neither tax proposal is likely to make headway in the 118th Congress, given that control of the House of Representatives flipped to Republicans as a result of the last election. Even though the new head of the House¹¹ tax-writing committee (Ways and Means Committee Chair Jason Smith (R-MO)) is more focused on the needs of working-class Americans than catering to the wishes of large corporations,¹² we still wouldn’t expect Republicans to vote in favor of any tax increases this Congress. To emphasize this point, House Republicans changed the rules to now require a three-fifths supermajority vote to pass any tax rate increases.¹³ (For a bit more background on the stock buyback tax and the BMIT—including Constitutional questions regarding the latter—turn to the end of this report.)

That doesn’t necessarily mean, however, that there will be no tax law changes in 2023. Tax policy wonks see a real opportunity for limited corporate tax relief to ride along with one or more high-priority tax “fixes” that need to be implemented before 2024 to avert what are increasingly being viewed as unacceptable consequences on everyday Americans. What tax “fixes” might create momentum for broader tax relief that could impact public companies?

• Form 1099-K Reporting Threshold Relief – Increasing the reporting threshold in Internal Revenue Code (IRC) Section 6050W, which requires third party payment networks such as Venmo, PayPal and Etsy to issue Forms 1099-K for aggregate gross transactions exceeding $600 a year (a requirement that was effective for 2023, but that the IRS administratively delayed by one year¹⁴). This would not be a technical correction—Congress affirmatively lowered the threshold from $20,000 to $600¹⁵ as a revenue raiser in the American Rescue Plan Act of 2021—but a growing number of lawmakers now feel that the burden posed by the reduced threshold justifies its repeal.
• Retirement Catch-Up Contribution Relief – Resolving the technical glitch caused by the deletion of IRC Section 402(g)(1)(C) (in Section 603 of the SECURE 2.0 Act of 2022¹⁶), the result of which is that older workers won’t be able to make pre-tax or Roth catch-up contributions to their 401(k) tax-favored retirement accounts starting in 2024. (This is one of at least a few other technical corrections identified in the SECURE 2.0 Act.)¹⁷

The political reality is that neither will be fixed in a vacuum. They will either carry other legislative priorities along for the ride in a larger bill, or they won’t get fixed at all. More and more lawmakers agree that both fixes are urgently needed to avoid widespread unintended consequences. In the case of the Form 1099-K reporting threshold, inaction could cause inappropriate and unfair over-reporting, potentially impacting tens of millions of Americans. In the case of the 401(k) catch-up contribution drafting error, inaction would prevent millions of Americans in the last years of their working lives from taking steps to fortify their financial security. As the political and public will for these fixes grows (potentially aligning the interests of both a majority in the Republican-led House and a majority in the Democrat-led Senate), so too does the chance that Congress will decide this year to step in and enact fixes for one or both of these tax problems before they impact Americans in 2024.

While such tax relief wouldn’t have an impact on the stocks in traders’ portfolios, it could create a legislative vehicle for tax add-ons that would.¹⁸ There are a handful of significant corporate tax thorns that many public companies had hoped Congress would remove in end-of-2022 tax “extenders” legislation. No such legislation materialized, and the thorns remain in 2023. Businesses would like to see them removed legislatively by:

1. Retroactively reinstating expensing for certain research costs (e., doing away with mandatory five-year amortization of such costs under Section 174);
2. Retroactively extending the ability of businesses to take advantage of full (100 percent) bonus depreciation under Section 168(k) (80-percent partial depreciation started in 2023); and
3. Retroactively increasing the cap on the amount of interest businesses can deduct under Section 163(j) (i.e., returning the cap to 30 percent of earnings before interest, taxes, depreciation and amortization (EBITDA) instead of EBIT).

The chance that one or more of these corporate tax extenders—many of which have bipartisan support—could tag along to a 2023 bill whose primary purpose is to provide relief on the Form 1099-K and/or catch-up contribution issue—without risking loss of momentum—is still up in the air. But it’s definitely not zero. What remains a complicating factor is Democrats’ insistence that any business tax breaks be paired with tax breaks for families,¹⁹ calling for a return of the 2021 expanded Child Tax Credit (CTC) monthly payments (something Chairman Smith has said he might support to an extent, as long as work requirements are attached to the benefits²⁰). We believe there is a theoretical path here (albeit one fraught with tricky politics requiring careful negotiation).

Further, if one or more of these corporate tax provisions (likely all three, if the path is a go) is able to hitch a ride on a tax bill in 2023, then they would likely be extended through the end of 2025, so they their expiration lines up with the expiration of the individual tax cuts from the Tax Cuts and Jobs Act of 2017,²¹ making the impending tax “cliff” even more precipitous.

It’s notable that the House rules package adopted January 9²² shouldn’t be a stumbling block to such a strategy. The House rules now require that bills be more targeted (specifically, that they be limited to a single subject). This single subject rule merely imposes a reporting requirement on lawmakers, who now must submit a statement to accompany a bill setting forth the single subject of the legislation—the interpretation of which is governed by the Office of the Parliamentarian. However, based on a limited review of what has already shown up as single subject statements in the Congressional Record since the rule was adopted, we suspect this new requirement will not be a bar to combining multiple tax relief provisions into one bill.²³

The House rules now also provide that bills can contain tax cuts without offsets (pursuant to the cut-as-you-go or CUTGO²⁴—which replaces the PAYGO (pay-as-you-go)—rule). While CUTGO essentially means that any new “mandatory spending” must include equal or greater reductions in such spending in the same bill, CUTGO generally does not require offsets for any reductions in revenue (as a result of tax cuts), because that’s generally not considered spending.

Stock Buyback Tax

Quadrupling the rate of the stock buyback tax—from 1 percent to 4 percent—will not quadruple the revenue generated by the tax. As we previously reported,²⁵ there have been suggestions that that revenue score associated with the stock buyback tax was the same regardless of whether the rate was set at 1 percent or 2 percent (because at some point between the two rates, companies presumably will decide the tax is significant enough to change their behavior).

Therefore, Biden’s proposal is more about discouraging companies from engaging in repurchases, encouraging them instead to use their excess capital for things like reinvesting in the company and its workers or distributing earnings to shareholders in the form of dividends.

The current 1-percent tax does in fact raise revenue—an estimated $74 billion over 10 years.²⁶ We suspect members of the President’s own party may be reluctant to increase the stock buyback tax to 4 percent. Apart from skepticism about the wisdom of investment decisions by managers precluded from disbursing cash to shareholders (e.g., overpaying for bad M&A deals), Democrats might prefer not to discourage public companies from taking steps that bolster the value of union pension plans and the 401(k) accounts of millions of middle class Americans.

The stock buyback tax is also not Biden’s only focus in his attack on repurchases. In connection with its budget proposal last year, the Biden Administration released a document setting forth the president’s priorities. In that document, Biden expressed support for legislation that would (in certain cases) prohibit certain corporate executives from selling the corporation’s securities during the five-year period that begins when the executive acquired the stock and during the three-year period following a buyback. (Our prior report on this executive share-sale freeze proposal is appended.)²⁷ While the proposal didn’t formally make it into the so-called green book (detailed summaries prepared by the Treasury Department on the tax provisions associated with the President’s budget) last year, we will be keeping an eye on whether it resurfaces again this year (the expected release of the FY2024 Green Book is March 9, 2023).

Billionaire Minimum Tax

Biden’s BMIT proposal—combined with the repeal of stepped-up basis at death, something Biden is also seeking—shares some similarities with other radical wealth tax proposals that would annually tax unrealized gains (including those floated by Sen. Ron Wyden (D-OR)²⁸ and Sen. Elizabeth Warren (D-MA)).

Under the outlines of the BMIT contained in last year’s green book, any individual with wealth (reduced by any debts) in excess of $100 million would be subject to the BMIT (but because of how the proposal is structured, only those with wealth in excess of $200 million would be subject to the fully phased in BMIT). The tax would be paid annually (but could be spread out over five years if need be). In the case of illiquid taxpayers (with wealth comprised of less than 20 percent tradable assets), the tax would only be due annually with respect to the tradeable assets. The total basis and total estimated value of all assets would be disclosed each year.

And the rate? A 20 percent minimum tax on total income (including unrealized gains) treated as an advance payment of capital gains taxes (which, also under Biden’s plan, would be taxed at death in any event without a basis step-up). The initial tax on the preexisting, built-in gain due in the first year can be paid over a nine-year period.

While some constitutional and tax law scholars (including Harvard Law School’s Laurence H. Tribe and Georgetown University Law Center’s Brian Galle²⁹) have asserted that such federal wealth taxes would clearly withstand constitutional challenges, not everyone agrees. In fact, a case that touches on a similar question may soon find its way to the U.S. Supreme Court.

In June 2022, the Ninth Circuit affirmed the opinion of the District Court in a repatriation tax challenge (Moore v. United States) that the libertarian think tank the Competitive Enterprise Institute (CEI) hopes will be taken up by the Supreme Court.³⁰ Ironically, in approving the constitutionality of a tax imposed during the Trump administration,³¹ the case could help empower Democrats to enact some version of the BMIT.

The case involves the deemed repatriation tax under Section 965,³² and the taxpayers argued that imposing an income tax on unrealized income (no payment or disposition of an underlying asset) goes beyond the taxation of “income” authorized by the 16th Amendment. Both the lower court and the appeals court held that the Section 965 deemed repatriation tax was constitutional. However, CEI thinks the ruling in the Moore case is inappropriately broad—citing the Ninth Circuit’s dissent in the court’s denial of en banc review issued November 22, 2022—because “neither Congress nor our court may redefine income to include unrealized gains.”³³ If the ruling stands, it “opens the door to new federal taxes on all sorts of wealth and property without the constitutional requirement of apportionment.”³⁴

One never knows, but we do not see the Moore decision as such an outlier, nor is there a conflict with other circuits, and so we doubt the case will be taken up by the Supreme Court. While a billionaire tax is not something we expect to advance this Congress, we will be closely following how this case might impact the viability of future federal wealth tax proposals. On the state level, we are also following how several progressive states have banded together recently to introduce proposals to increase taxes on the wealthy—through a variety of means that include a wealth tax and a new tax bracket or surtax for the ultra-rich—in a coordinated effort aimed at generating revenue without losing residents (the states include California, Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York and Washington).³⁵While tax hikes designed in part to address income inequality may not currently be in the cards as states’ financial reserves remain relatively high, a downturn could change the calculus and create enough support for broad enactment.

One or more authors may have positions in stocks referred to in this article. Akin may represent individuals or entities that may have positions in stocks referred to in this article.

Akin Gump Strauss Hauer & Feld LLP has a full tax team closely following developments in this area. Please feel free to contact any of them with any questions.

^{1 The corporate alternative minimum tax on book income or CAMT (Internal Revenue Code (IRC) §56A) hits corporations that report over $1 billion in average annual profits.}

^{2 Although the stock buyback tax (IRC §4501) is paid by corporations, buybacks are often thought to benefit corporate executives and insiders. If the tax were high enough to discourage buybacks, such high-income individuals would lose out.}

^{3 For taxable years beginning after December 31, 2022 in the case of the CAMT and for repurchases of stock of a covered corporation made after December 31, 2022 in the case of the stock buyback tax.}

^{4 N.Y. Times, Full Transcript of Biden’s State of the Union Address, Feb. 8, 2023 (https://www.nytimes.com/2023/02/08/us/politics/biden-state-of-the-union-transcript.html).}

^{5 Id.}

^{6 See the so-called green book, the General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals (https://home.treasury.gov/system/files/131/General-Explanations-FY2023.pdf), starting on page 34.}

^{7 Chandra Wallace, Tax Notes Today Federal, Mega-Buybacks Spark Debate Over Raising Excise Tax Rate, Feb. 8, 2023 (subscription required).}

^{8 In late Jan. 2023, Chevron Corporation (NYSE: CVX) announced plans to triple its buyback authorization to $75 billion starting April 1, 2023 (with no end date). In early Feb. 2023, Shell plc (NYSE: SHEL) announced that it would repurchase
$4 billion of its stock over a three-month period. In Dec. 2022, Exxon Mobil Corporation (NYSE: XOM) announced an increase in its share buybacks to $17.5 billion each year for the next two years.}

^{9 Facebook parent company Meta Platforms, Inc. (NASDAQ: META) (Meta) announced Feb. 1, 2023 that it would increase its buyback authorization by $40 billion. In the third quarter of 2022, Meta was one of the top four companies with the largest share buybacks—all four were in the tech industry (the others were Apple Inc. (NASDAQ: AAPL), Alphabet Inc.
(NASDAQ: GOOGL) and Microsoft Corporation (NASDAQ: MSFT)).}

^{10 Supra, note 4.}

^{11 The U.S. House of Representatives is where all bills for raising revenue are supposed to originate, pursuant to the U.S. Constitution, Article I, Section 7, Clause 1.}

^{12 Chairman Smith says “the needs of farmers, small businesses and working-class Americans should come first when setting policy. . . That focus could make it harder for corporations to draw attention to their tax-policy goals, such as trying to revive recently expired tax breaks,” as reported by Richard Rubin, Wall St. J., Top GOP Tax Legislator Says He’ll Boost Workers, Probe Companies, Feb. 6, 2023 (https://www.wsj.com/articles/top-gop-tax-legislator-says-hell-boost-workers-probe-companies-11675695374); Chairman Smith is more concerned about the needs of “working-class Americans,” reported Brian Faler, PoliticoPRO, Jason Smith: No hurry to reconsider Dems' minimum tax on business, Dec. 7, 2022 (subscription required).}

^{13 H. Res. 5, Sec. 2(b).}

^{14 Notice 2023-10, 2023-3 IRB 403.}

^{15 Technically, the minimum reporting threshold went from gross payments that exceed $20,000 for the year and more than 200 transactions to $600 and one transaction.}

^{16 In the Consolidated Appropriations Act, 2023 (P.L. 117-328).}

^{17 We are skeptical that a true technical corrections bill (without add-ons) can get through Congress in 2023. Technical corrections have been politicized in recent years (with Democrats refusing to help pass technical corrections for the Tax Cuts and Jobs Act of 2017 reconciliation bill (P.L. 115-97), which was enacted entirely by Republicans in the Senate, and, similarly, Republicans likely refusing to help pass technical corrections for the Inflation Reduction Act of 2022 reconciliation bill (P.L. 117-169), which was enacted entirely by Democrats in the Senate). Technical corrections bills are traditionally bipartisan, usually retroactive and do not have any impact on revenue (because the correction simply reflects the congressional intent of the original legislation, which was already scored).}

^{18 Doug Sword, Tax Notes Today Federal, Retirement, 1099-K Fixes May Be This Year’s Easiest Tax Vehicles, Feb. 3, 2023 (subscription required).}

^{19 This is viewed as the price of admission by many Senate Democrats.}

^{20 Doug Sword, Tax Notes Today Federal, Overseeing IRS Spending ‘Top of the List’ for W&M Chair Smith, Feb. 1, 2023 (subscription required).}

^{21 P.L. 115–97.}

^{22 https://rules.house.gov/bill/118/h-res-5}

^{23 Some examples of recent single-subject statements published in the Federal Register include: federal government reform, elections, abortion, commerce, foreign affairs, veterans, healthcare, intellectual property, public safety and oversight.}

^{24 Note that the House CUTGO rule has merely been revived. A prior version was in place from the 112th-115th Congress.}

^{25 “Monster Tax Mash: Spooky Tax Proposals Impacting Pubcos Rise from Fresh Grave of Murdered Corporate Rate Hike” (Oct. 26, 2021).}

^{26 JCX-18-22 (https://www.jct.gov/publications/2022/jcx-18-22/).}

^{27 “In Budget, Biden Supports Three-Year Freeze on Executive Share Sales After Buyback” (April 21, 2022).}

^{28 Sen. Wyden’s September 2019 proposal to “Treat Wealth Like Wages” was a mark-to-market plan to annually tax the unrealized gains in tradeable assets such as stock along with imposing a lookback rule upon the realization of nontradeable assets such as real estate for individuals with more than $1 million in annual income or more than $10 million in assets. Later, at the end of October 2021, he proposed the Billionaires Income Tax (raising the threshold to $1 billion in assets or $100 million in income), which was rumored to be part of the mix of payfors during discussions concerning the Build Back Better reconciliation bill that ultimately didn’t succeed.}

^{29 https://www.warren.senate.gov/imo/media/doc/Wealth%20Tax%20Constitutionality%20Letter%20-%20Ackerman%20Et%20Al..pdf; https://www.warren.senate.gov/imo/media/doc/Wealth%20Tax%20Constitutionality%20Letter%20-}

^{%20Glogower%20Et%20Al.pdf}

^{30 Moore v. U.S., 36 F.4th 930 (9th Cir. June 7, 2022), rehearing denied 130 AFTR 2d 2022-6534 (9th Cir. Nov. 22, 2022).}

^{31 The Tax Cuts and Jobs Act of 2017 (TCJA, P.L. 115–97).}

^{32 This tax deemed certain U.S. shareholders of foreign corporations to have a taxable income inclusion of a share of the foreign corporation’s previously untaxed accumulated earnings and profits even though the shareholders may have never received a cash distribution associated with such earnings.}

^{33 https://cei.org/wp-content/uploads/2022/11/Moore-En-Banc-Denied.pdf}

^{34 Id.}

^{35 Aimee Picchia, MoneyWatch, A national wealth tax has gone nowhere. Now some states want to tax the ultra-rich., Jan. 20, 2023 (https://www.cbsnews.com/news/wealth-tax-in-8-states-california-new-york-connecticut-washington-illinois/); Julie Zauzmer Weil, Wash. Post, Billionaires in blue states face coordinated wealth-tax bills, Jan. 17, 2023 (https://www.washingtonpost.com/business/2023/01/17/wealth-taxes-state-level/).}