The administration mentioned within the preview that taxing buybacks ranges a distortion within the tax system between alternative ways of returning company income to shareholders. Dividends are taxable for a lot of shareholders, whereas inventory buybacks—till this yr—usually weren’t a taxable occasion for both the corporate or shareholders who didn’t promote their shares. 

Most households personal inventory by way of pensions, investments or retirement accounts, mentioned Cathy Schultz, vp for tax and monetary coverage on the Enterprise Roundtable, a bunch representing large-company chief executives.

“This proposal would discourage funding and development, hurting American households, particularly seniors,” she mentioned of Mr. Biden’s plan to name for growing the tax.

Congress created the 1% tax as a part of the local weather, well being and tax regulation handed final yr, referred to as the Inflation Discount Act. No Republicans voted for the invoice, and it was one of many few tax will increase that was in a position to generate unanimity amongst Senate Democrats. The buyback tax was projected to lift $74 billion over a decade by the Joint Committee on Taxation. Estimates of the income assortment might embrace an assumption that some corporations shift towards taxable dividends. 

Early company conduct and statements from executives recommend that corporations is perhaps accepting the 1% tax as a value of doing enterprise, not altering their buyback practices. 

The brand new buyback tax is prone to scale back S&P 500 earnings by about 0.5% in 2023, too little to have an effect on company share-repurchase practices, mentioned Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.

Corporations would seemingly begin to shift some buyback spending to dividend funds if the tax on repurchases reaches 2.5%, he added.

Chevron Corp.

final month introduced a $75 billion buyback together with greater dividends. The White Home in its preview of the State of the Union speech criticized oil-and-gas corporations’ buybacks. 

Senate Finance Committee Chairman

Ron Wyden

(D., Ore.) mentioned final month that oil corporations’ buyback tax needs to be 25%. 

“It’s essential to place a verify on the value gouging and the windfall for rich shareholders,” Mr. Wyden mentioned after Chevron’s announcement. Chevron didn’t instantly reply to a request for remark.

Mr. Biden additionally plans to speak about imposing minimal taxes on very rich People, who can typically pay little in taxes in the event that they don’t promote their investments and notice earnings. He proposed that concept final yr, and it didn’t change into regulation whereas Democrats have been answerable for Congress.

—Theo Francis contributed to this text.

Write to Richard Rubin at richard.rubin@wsj.com