JHML - Why A 2% Excise Tax On Buybacks Isn't Welcome News For Investors

• Taxes on stock buybacks are currently discussed in the U.S. The latest proposal is for a 2% excise tax on buybacks.
• I demonstrate that because of the tax shield effect of the excise tax, depending on the investor's capital gains tax bucket, the effective excise tax rate will be lower.
• If the proposal gets enacted, it could increase index volatility and decrease liquidity. I think the Financials sector will be one of the more affected.
• Buybacks will continue to be used but in more niche corporate situations.
• Corporate treasurers may frontload their buyback programs in Q4 to avoid paying the tax next year.

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