Claw-Back Tax Rally on Wall Street and Beyond

March 20, 2018. On March 9th a protest was held on Wall Street demanding that corporations either pay their workers or pay their fair share of taxes. FPI joined the rally, where ordinary tax payers, elected officials, community organizations and labor unions called for a 0.5% New York State tax on stock buyback trades, which would mean corporations using their federal tax cuts simply to benefit their shareholders would have to pay a small New York State tax on the buyback. The tax is estimated to raise $2 billion per year in revenue which could be spent on affordable housing, healthcare, and providing quality education to all New Yorkers.

The rally was organized by the Professional Staff Congress, the union representing CUNY faculty and staff, with support from the Strong Economy for All Coalition, VOCAL New York, FPI, New York Communities for Change, and Assembly member Yuh-Line Niou.[1]

“Wall Street is doing fine and does not need additional help from the state,” Jonas Shaende, FPI’s Senior Budget and Policy Analyst, said at the rally. “We have 40 years of evidence of growing wealth of the 1% and concurrently 40 years of evidence of stagnant real earnings for the rest. By applying only half a percent tax the state of New York can generate an estimated $2 billion of new revenue to address New York’s needs.”

Since the Tax Cuts and Jobs Act slashed the corporate tax rate from 35 to 21 percent in December 2017, U.S. companies are flush with cash. President Trump promised that this new tax overhaul would lead to a surge in investment which, in turn, would generate bigger paychecks for working Americans. Instead, it has been used to funnel profits to shareholders through the use of buybacks, a practice where companies buy their own shares trading on the stock exchange.

“New York State should seek to impose a Stock Buyback Transfer tax when large profitable corporations are using their windfall from the federal tax cuts to buy back stocks rather than create jobs and increase worker pay,” said Jonas Shaende. “This proposal builds on the structure of the NYS Stock Transfer tax, where we currently collect $13.8 billion a year in a minuscule sales tax on stock transactions and then astonishingly rebate 100 percent right back to the brokers that pay it. Reinstating this tax on buybacks would allow Governor Cuomo and the State Legislature to tax some of the windfall profits companies are making off the tax bill and protect New Yorkers from devastating federal cuts to health care and education.”

Although research shows that the rise in buybacks has harmed wages and investments, total 2018 buybacks are on pace to reach $800 billion, a 62% increase in the amount U.S. companies spent on buybacks last year.[2]

U.S. companies have announced more than $218 billion in share buybacks since Congress enacted the tax overhaul in December 2017.[3] Spending on buybacks surged to $153.7 billion in February alone, which is the largest amount ever spent on buybacks in one month.

Shaende stressed in his comments delivered at the rally that New York State currently operates under a self-imposed two percent spending growth cap, and has a $4.4 billion structural budget deficit. The state “desperately needs this money to spend on fixing New York’s transportation (things like the MTA), higher education, homelessness problem, etc.,”

Participants at the rally imagined what they could achieve with two billion dollars and on Friday, March 9th, actions across the state were led to call for the Governor and legislature to tax buybacks at 0.5%.

For a more comprehensive look at the state’s revenue and budget challenges, see the Fiscal Policy Institute’s 2018-2019 budget briefing book, which includes a discussion of many other progressive pro-revenue tax proposals which would generate billions of dollars that New York needs to remain competitive in the future. Amongst these proposals are the “claw-back tax” and the stock transfer tax.

For more on these issues, watch The Fiscal Policy Institute’s Director, Ron Deutsch, give an interview discussing this with Spectrum News here!

By: Shamier Settle

 

[1] Professional Staff Congress CUNY, New Yorkers to Albany: Tax Stock Buyback Trades to Protect Healthcare, Housing and Education.

[2] Ossinger, J., Popina, E. (2018). New Grist in Tax-Cut Debate is $800 Billion Buyback Estimate. Bloomberg, 2 March.

[3] Reuters, (2018). U.S. Corporate Share Buybacks ‘Explode’ in February: research firm. Reuters, 28 February.

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