Daniel J. Hemel and Gregg D. Polsky: Equalizing the Tax Treatment of Stock Buybacks and Dividends (April 15, 2021)

Daniel J. Hemel and Gregg D. Polsky, of University of Chicago – Law School and University of Georgia School of Law, respectively, have made available for download their article, “Equalizing the Tax Treatment of Stock Buybacks and Dividends,” published in SSRN. The abstract is as followed:

This policy brief highlights flaws in the current federal tax treatment of stock buybacks and proposes to address those flaws by equalizing the tax treatment of buybacks and dividends. (We explore the proposal in greater detail in Hemel & Polsky, Taxing Buybacks, 38 Yale J. on Reg. 246 (2021), https://ssrn.com/abstract=3764112.) Stock buybacks allow foreign shareholders to avoid U.S. withholding tax on corporate cash distributions. Stock buybacks also allow U.S. taxable investors to reduce or eliminate shareholder-level tax on corporate cash distributions through a combination of deferral, loss harvesting, and stepped-up basis at death. Our proposal—based on an idea first suggested by Marvin Chirelstein a half century ago—would plug these gaps in the tax base by treating stock buybacks as imputed dividends. We explain the mechanics of the proposal and the principal design choices facing policymakers. We also estimate—conservatively—that the proposal would raise more than $500 billion over the 10-year budget window.

To view the full article, click here: “Equalizing the Tax Treatment of Stock Buybacks and Dividends”

Posted by Jessica Ji, Associate Editor, Wealth Strategies Journal.

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