Democrats try anew to ban companies from stock buybacks, say they 'exacerbated inequality'

A group of House Democrats has reintroduced legislation to ban corporate stock buybacks, arguing that the practice has "exacerbated inequality" in the country.

The investment strategy by corporations is to repurchase its outstanding shares to reduce the number on the market to increase the value of the remaining shares

"Over the past year, Big Oil companies and other industries drove up costs for consumers while rewarding their shareholders with buybacks," said California Democratic Rep. Ro Khanna. "It’s time to put a stop to this greed" and move to "repeal this rule that has only exacerbated inequality in our country."

Khanna said the practice dates back to the 1980s when the Securities and Exchange Commission, under former President Ronald Reagan, implemented the rule.

According to the Harvard Business Review, "companies have been allowed to repurchase their shares on the open market with virtually no regulatory limits since 1982, when the SEC instituted Rule 10b-18 of the Securities Exchange Act."

The review explains that under this rule, the board of directors of a corporation are able to "authorize senior executives to repurchase up to a certain dollar amount of stock over a specified or open-ended period of time, and the company must publicly announce the buyback program."

The House Democrats' Reward Work Act, which was also introduced in the previous session of Congress, would repeal the rule as a way to outlaw stock buybacks.

The bill was reintroduced Thursday, weeks after the Securities and Exchange Commission released stringent buyback disclosure rules, according to CNBC.

Illinois Democratic Rep. Chuy Garcia and Oregon Democratic Rep. Val Hoyle are also sponsoring the bill.

“Last year, companies spent $1.2 trillion on buybacks as worker wages barely kept pace with inflation," Garcia said in a statement. "It’s time we stop allowing corporate executives to make millions by buying back their own stock while workers and consumers pay the price.”

The Democrats passed the $740 billion Inflation Reduction Act last year, which included, among many other provisions, a 1% tax on stock buybacks and 15% minimum corporate income tax. President Biden signed the bill into law.

In his 2023 State of the Union Address, Biden called for increasing the stock buyback tax to 4%, which Congress has not passed.

Garcia said the Reward Work Act would also give "workers a voice on corporate boards, as it's done in places like Germany." The bill contains a requirement for "one-third of an issuer's board of directors to be elected by employees in order for the issuer to be allowed to register securities."

Supporters of the measure also say corporations should spend the money used for buybacks on better salaries, benefits and safety measures.

The measure also has support from members of the House Democratic Conference but is not expected to pass in the GOP-controlled House.