How did a Previously Unscrupulous Tactic Become a Popular Corporate Strategy?….. Time to Discuss the Impact of an Excise Tax on Treasury Stock

Abstract

The problematic history of stock buybacks, known more familiarly as Treasury Stock acquisitions, has at times been described as unscrupulous transactions resulting in stock manipulation tactics engaged in by corporate America (Kotter, 1952). However, when the Securities and Exchange Commission (SEC) passed rule 10b-18, the definition of share buybacks changed from problematic manipulative strategies to brilliant corporate maneuvers (SEC Act 1934.). The SEC’s enactment of Rule 10b-18 opened Pandora’s Box for corporations to engage in unfettered access of their own issued stock shares. The 10b-18 SEC Rule provided a pathway for corporations to buyback their own previously sold stock shares within an accepted legal framework. Unfortunately, the SEC Rule 10b-18 has been viewed as sanctioning the use of corporate funds for valueless purchases depleting the liquidity of the corporate balance sheet. But should these transactions, be subject to tax as a means to rectify the problematic buyback mania?