
Stock Buybacks, a New Target for Congress; Congress Rebels, a Turning Point for Donald Trump
Author: Greg Valliere
February 13, 2019
THE TRUMP TAX CUTS helped to turbo-charge the economy last spring and summer, but as the impact wears off and tax refunds look disappointing, the unintended consequences are becoming more apparent. One that has attracted increasing attention on Capitol Hill is the widespread corporate reliance on stock buybacks, to the detriment of investment and higher worker compensation.
NOT JUST DEMOCRATS ARE OPPOSED TO THE PRACTICE: Even Marco Rubio, the Republican Chairman of the Senate Small Business Committee, has joined Bernie Sanders and Chuck Schumer in an effort to decrease the preferential tax treatment of stock buybacks. Rubio’s bill would treat buybacks as dividends, not capital gains.
THE GOAL IS MORE BUSINESS INVESTMENT, so the Rubio bill would extend a provision scheduled to expire in 2022 that allows businesses to fully and immediately deduct their expenses. Rubio’s bill would make this provision permanent and would expand the types of investments eligible for the deduction.
OUR SENSE IS THAT THE RUBIO BILL HAS A CHANCE OF PASSAGE: There’s a pervasive view on Capitol Hill that companies are spending too much of their tax windfall on stock buybacks, with shareholders benefiting more than workers. The politicians surely can read the polls, which show growing antipathy toward big business, so we think this measure could move in the next couple of years as the Trump tax cuts attract increasing opposition.
THE CONGRESSIONAL REBELLION: We have insisted that there wouldn’t be another lengthy shutdown, for one major reason: Congress has revolted against Donald Trump, who still could veto the wimpy border deal — but that veto would get over-ridden. Both parties are unified: the shutdown was a disaster, they agree. So Trump will have to swallow a deal that gives him far less than what he could have gotten late last year.
THIS IS A TURNING POINT FOR TRUMP: It’s not complicated — he doesn’t have the votes, certainly not in the liberal House and not even in the Senate, which doesn’t want 800,000 people to lose their paychecks again. The key player, as usual, is Majority Leader Mitch McConnell, whose ultimate allegiance is to his members, not Trump.
THE PRESIDENT STILL HAS A LOYAL SUPPORTERS, about one-third of the American electorate, and he has the militant talk show hosts who have given him consistently bad advice, as the Wall Street Journal lead editorial notes this morning. But Trump has gotten a wake-up call: he has to deal with the increasingly feisty Congress, and whether he has those dealmaking skills is unclear, to be charitable.
CHINA TRADE NEWS: Trump confirmed yesterday what we have long suspected: there simply isn’t enough time to finish negotiations with China on a trade deal before the March 1 deadline, so an extension is probable. Trump will milk this one; there will plenty of drama until a climactic summit with Chinese President Xi in a few months.
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