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- Warren Buffett's Berkshire Hathaway spent $31 billion on stock buybacks in the year to June 30.
- Democratic senators have proposed a 2% tax on share repurchases.
- Berkshire would have owed $620 million under the buyback tax in the year to June 2021.
- See more stories on Insider's business page.
Warren Buffett's favorite investment over the past year could shoot up in price if US lawmakers succeed in slapping a 2% tax on buybacks.
The famed investor is itching to deploy $80 billion of Berkshire Hathaway's cash. However, he has struggled to find bargains with the US stock market at record highs, and private equity firms and special-purpose acquisition vehicles (SPACs) driving up the price of acquisitions.
The lack of compelling investments spurred Buffett to spend a record $31 billion repurchasing Berkshire stock in the 12 months to June 30. Meanwhile, his company sold a net $2.7 billion of equities in the period, and its only major deal was a roughly $8 billion purchase of natural gas infrastructure.
Buffett's go-to investment could become significantly less attractive if Sen. Sherrod Brown and Sen. Ron Wyden have their way. The two senators are seeking to pass the Stock Buyback Accountability Act, which would impose a 2% excise tax on share repurchases.
The legislators want to encourage corporate executives to invest in their companies and workers instead of using spare cash to reward shareholders. The tax promises to raise more than $100 billion for the federal government over the next decade, a Brown aide told The Wall Street Journal. The funds raised could be spent on healthcare, education, infrastructure, and other public programs.
However, the bill would be a blow to Berkshire and other companies that spend billions of dollars on buybacks annually. All things being equal, if the tax had been rolled out last summer, Buffett's company would have owed about $620 million on its buybacks during the 12 months to June 2021 - equivalent to 5% of the $12 billion of income tax it paid in 2020.
Buffett has repeatedly trumpeted the value of buybacks for companies that have ample cash and can repurchase their shares at a material discount to their intrinsic value. The investor has noted that sensible buybacks increase shareholders' ownership of a company by reducing its outstanding shares, help stock sellers get a price, signal that executives are acting in shareholders' interests, carry less risk than acquisitions, and don't incur taxes like dividends - at least for now.
Berkshire's buybacks have already grown more expensive over the past year as its stock price has risen. A tax would make them even less attractive, further limiting Buffett's spending options.
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