U.S. Representative Jesus Garcia (D-IL) speaks in opposition to Title 42 during a news conference outside the U.S. Capitol in Washington, U.S., April 28, 2022.
Elizabeth Frantz | Reuters
WASHINGTON — House Democrats on Thursday reintroduced a bill that would ban open-market stock buybacks, weeks after the Securities and Exchange Commission released stringent buyback disclosure rules.
The Reward Work Act would prohibit companies from increasing the value of their market shares by buying back shares on the open market. Lawmakers said it would also level the playing field for workers by preventing trillions in spending on buybacks instead of salaries.
The bill “also gives workers a voice on corporate boards,” Rep. Jesus Garcia, D-Ill., one of the bill’s co-sponsors, said Thursday.
“Stock buybacks allow corporations to purchase shares of their own stock price at the expense of workers, consumers and the U.S. economy,” Garcia said. “Almost every corporation has participated in these practices.”
Reps. Ro Khanna, D-Calif., and Val Hoyle, D-Ore., also co-sponsored the bill. With Republicans holding a slight majority, it’s unlikely the bill get through the House.
“It’s also critical and an important part of this bill that we give workers a voice that is proportional to the value that their labor provides to the corporation,” Hoyle said Thursday.
U.S. corporate stock buybacks grew from a total of $950 billion in 2021 to over $1.25 trillion last year, SEC Chairman Gary Gensler said earlier this month.
The commission recently introduced rules starting in the fourth quarter of this year to increase the transparency of buyback behavior and allow investors “to better assess issuer buyback programs” as corporate repurchasing reaches record highs.
Last month, the board of Google parent Alphabet announced it had approved $70 billion in stock buybacks this year, matching its 2022 rate. Apple will also repeat its 2022 performance by repurchasing $90 billion in shares this year.
Garcia said that railroad company Norfolk Southern spent $3.4 billion on buybacks in the year leading up to the February train derailment in East Palestine, Ohio, that spilled hazardous chemicals in the area.
“Now Norfolk Southern plans to spend almost 1,000 times the amount that they are paying the victims: $7.5 billion on buybacks,” he said. “That’s money that could instead be spent on basic safety improvements and worker benefits.”
A representative for Norfolk Southern did not immediately respond to a request for comment from CNBC.
Record repurchasing began in 1982 after the SEC passed a rule exempting buybacks, but the Tax Cuts and Jobs Act signed into law by former President Donald Trump also enabled corporations to freely repurchase to pay out shareholders and executives, the lawmakers said. Compensation for top executives is also often tied to stock performance.
“We’ll need transformative change to recenter workers and consumers in our country’s economy,” Garcia said. “And banning the stock buybacks is a good place to start.”
Eleven Democratic members of the House, along with four senators, including Sen. Bernie Sanders, I-Vt., signed onto the Reward Work Act when it was first introduced in 2019. Garcia and Khanna reintroduced it again last year as a companion to legislation proposed by Sen. Tammy Baldwin, D-Wis.