US Senators Sherrod Brown (D-OH) and Ron Wyden (D-OR) have proposed the Stock Buyback Accountability Act which, if passed, would impose a 2% excise tax on the value of any corporate securities purchased by the company during the fiscal year. If passed, the bill would take effect after December 31, 2021.
Senators Brown and Wyden proposed the excise tax to penalize companies that engage in stock buybacks which they claim “are currently heavily favored by the tax code, despite their skewed benefits for the very top and potential for insider game-playing.” Rather than buybacks, the senators want company management to hire more people and invest in capital expenditures.
As Congressional Democrats look for ways to pay for a proposed $3.5-trillion spending package, this excise tax is one of several proposed tax measures aimed at public companies.
Forbesreported that Goldman Sachs analysts issued a note to clients saying that the proposed excise tax could raise about $16 billion annually based on expected total buybacks of $800 billion.
Company CFOs opposing the bill argue that economic conditions, including shortages of labor, microchips and equipment, are the systemic issues impeding capital expenditures.
“Supply line disruptions and product shortages have prevented companies from normal purchasing let alone planning capital expenditures. Some companies say that they’re putting plant expansions either on hold or scaling them down because of equipment and labor shortages,” says Corey Fischer, Managing Partner of Weinberg & Company.
“When it comes to hiring, many companies are struggling. Covid-19 and its variants have severely disrupted business, with many workers refusing or reluctant to return to the workplace. Job boards are full, but applicants are too few. Uncertainty prevails. Rather than sit on excess cash, some companies are returning value to shareholders. For that, they should not be punished by a Capital Hill tax grab,” added Fischer.
The legislation exempts the excise tax if the proceeds from the stock repurchase is used to fund employer-sponsored retirement plans, employee stock option plans or if the value of the securities repurchased doesn’t exceed $1 million.
SPACs to Face More SEC Scrutiny
The Investor Advisory Committee (IAC) of the SEC has unanimously approved an 8-page document which urged the regulatory agency to mandate tougher disclosure standards for SPACs.
In its September meeting, the IAC outlined rules which would “regulate SPACs more intensively by exercising enhanced focus and stricter enforcement of existing disclosure rules.”
“SPACs by their very nature are rife with conflicts of interest which must be disclosed to potential investors,” said the panel, which was created under the Dodd-Frank Act. “Even when those conflicts are disclosed, their import may not be clear to an unsophisticated investor.”
The IAC’s recommendations align with the comments that SEC Chair Gensler has been making about SPACs since taking the top spot at the regulatory agency. In a testimony before a House subcommittee, Gensler earlier warned “Each new issuer that enters the public markets presents a potential risk for fraud or other violations.”
The IAC recommended a long list of disclosure requirements, including:
· Disclosure of the SPAC sponsor, and/or insiders or affiliates such as celebrity sponsors/advisors, with explanations of the sponsor’s expertise, capital contributions and potential conflicts of interest.
· Plain English disclosure in the SPAC registration statement around the economics of the various participants in the SPAC, with explanations of how much founders were being paid.
· Provide a clear description of the mechanics and timeline of the SPAC process, including the precise nature of the instrument being purchased and events required in the next two years for value appreciation, details of shareholder approval process at the time of de-SPACing.
This additional scrutiny may likely further dampen SPAC offerings, which plunged in March when the SEC issued new guidance saying that warrants associated with SPACs must be reported as liabilities on the balance sheet rather than assets.
Since the ruling, financial restatements dominated the SPAC market as management rushed to comply. Over 570 blank check companies have issued some form of correction to their financial statements, four times the number of restatements seen in 2020.
Citing Goldman Sachs data, the IAC committee noted that SPACs raised $87 billion of the $125 billion in total IPO financing in 2021.
The combination of the warrant reclassification and pending regulatory scrutiny has resulted in an 87% plunge in the number of SPAC IPOs in Q2, according to FactSet.
Crypto Assets in SEC Cross-hairs
In his recent testimony before the US Senate Committee on Banking, Housing and Urban Affairs, SEC Chairman Gary Gensler reaffirmed his administration’s intention to reign in crypto assets under the regulatory umbrella.
“This asset class is rife with fraud, scams, and abuse in certain applications”, he said. “Right now, large parts of the field of crypto are sitting astride of, not operating within, regulatory frameworks that protect investors and consumers, guard against illicit activity, and ensure for financial stability.”
The Chairman is specifically targeting the following:
· The offer and sale of crypto tokens
· Crypto trading and lending platforms
· Stable value coins
· Investment vehicles providing exposure to crypto assets or crypto derivatives
· Custody of crypto assets
To tame what he described as the “Wild West” nature of crypto finance, issuance, trading or landing, Gensler said the SEC has already started working with other federal agencies, including the Commodity Futures Trading Commission, the Federal Reserve, Department of Treasury, Comptroller of the Currency and others.
“Make no mistake,” said Gensler. “To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they qualify for an exemption.”
Struggle to Hire and Retain Workers Will Continue
Employers finding difficulty in filling jobs and retaining workers can expect their struggles to continue into 2022.
That’s the finding of a survey of 380 employers conducted by leading global advisory firm Willis Towers Watson, which found that nearly three in four employers (73%) are having difficulty in attracting new employees, up from 56% of employers that experienced difficulty in the first half of 2020. The 73 percent is nearly three times the number of employers (26%) that reported difficulty in 2020.
It’s not much better on the employee retention front. Six in ten employers (61%) report having a hard time keeping workers and expect that will continue into 2022. Only 15% of those surveyed reported having difficulty retaining employees in 2020.
The top reason for people either leaving or not looking for work varied by position, career level and industry. Reluctance to return to the workplace and collecting unemployment benefits were the most cited reasons for hospitality and restaurant employees (72%) and warehouse and distribution employees (62%).
Among digital employees, demands for higher wages was the reason most cited (48%) by companies surveyed. More than half of the employers cited remote work policies as the main challenge for attracting and retaining managers (54%) and professionals (57%).
To attract and compete for that talent, 43% of employers said they are raising starting salaries, 39% are improving the employee experience, and 36% are making changes to health and well-being benefits. Only 33% are increasing workplace flexibility.
The 380 companies surveyed employed 7.4 million people in the U.S. and Canada.