No. of Recommendations: 13
. . . the idea is back with a vengeance. I suppose it would need congressional approval, which is probably not in the cards, unless the previous guy also likes the idea. Might he?Apologies for the (hopefully) non-partisan political analysis, but it is aimed solely at the question posed about the likelihood of a 4% buyback tax and its effects on Berkshire buybacks.
For what it's worth, from someone with a regrettable addiction to following U.S. politics, I would be willing to make a reasonably large wager that Mr. Biden's proposal will not be enacted any time in the foreseeable future. For understandable reasons, news accounts seldom delve into the soporific details of congressional rules that make it unlikely.
While there are populists in both parties who would likely support it, there is also a large bipartisan group that relies on corporate support to fund their campaigns. Most legislation requires 60 votes in the Senate to close debate and prevent a filibuster. Given the even partisan split today and the red team/blue team dynamic that prevails, getting to 60 on any substantive matter is extremely challenging. Many Democrats would like to abolish the filibuster, but they have never had the votes even within their own caucus to accomplish this.
The existing 1% buyback tax was enacted only because it was tucked into the Inflation Reduction Act, which passed the Senate on a party-line vote of 51-50, with the vice president breaking a 50-50 tie. The reason this bill did not require 60 votes is it fell under an esoteric rule called budget reconciliation. This requires a bunch of steps including approval by both the House and Senate of a budget resolution that refers specific proposals to specific committees under this designated process.
https://www.cbpp.org/research/introduction-to-budg...This is difficult to accomplish and happens quite rarely. As of 2022, it had been used 22 times in the preceding 48 years. It is more common today than it used to be because the increasingly dysfunctional Congress is no longer capable of passing the dozen or so appropriation bills required by the traditional budget process. Even so, this gridlock is usually addressed with massive continuing resolutions on the brink of government shutdowns rather than resort to the reconciliation process.
Current betting odds on this year's Senate elections favor Republicans to flip Democratic seats in Montana, Ohio and West Virginia. The latter is a virtual certainty with Joe Manchin retiring. If these odds prove accurate, the Senate will flip to Republican control. A measure to increase corporate taxes in any particular would be unlikely to reach the Senate floor under a Republican leader. Mitch McConnell made a science of this tactic and both declared candidates to succeed him learned at his feet.
Even if Democrats surprise the oddsmakers and retain control of the Senate, they would need 8-10 Republicans to cross the aisle and support Mr. Biden's proposal, a virtual impossibility in today's political climate.
I can come up with two plausible scenarios where a 4% buyback tax passes Congress. One is a massive blue wave in the coming election. The other is the former guy gets re-elected, champions an idea proposed by his hated rival, and Republicans in the Senate meekly follow along. I would put the percentage chances of either of these scenarios actually playing out in the single digits.
So, to quote Jim Carrey, you're saying there's a chance! Yes, there's a chance. Anything is possible. But I would not let items on partisan political wishlists with no visible path to passage affect my investment decisions.
JMO, of course.
