Markets reacted sharply this week to the unveiling of a new legislative proposal aimed at imposing higher taxes on corporate stock buybacks. The "Stock Buyback Accountability Act," introduced by a coalition of Senate Democrats, calls for increasing the excise tax on share repurchases from the current 1% to 4%. The proposal is intended to encourage companies to prioritize investments in employee wages, research and development, and capital improvements over returning capital to shareholders. Senator Elizabeth Warren (D-MA), a key sponsor, stated, "For too long, giant corporations have prioritized stock buybacks to enrich executives and wealthy shareholders at the expense of workers and the broader economy. It's time to fix that imbalance." Investors are concerned that the higher tax could lead to a slowdown in buyback activity, which has been a major driver of stock market gains over the past decade. According to Goldman Sachs, S&P 500 companies repurchased over $922 billion of their own shares in 2023, bolstering earnings per share and supporting elevated valuations. "A 4% tax materially changes the calculus for corporate finance teams," said Sarah Lin, senior equity strategist at Morgan & Co. "We could see a notable pullback in buybacks, which would remove a significant pillar of support for equity prices." The technology and financial sectors, which historically lead in buyback volumes, could be disproportionately affected. Shares of major repurchasers like Apple, JPMorgan Chase, and Meta Platforms closed lower following news of the proposal. Meanwhile, corporate earnings season is underway, and some executives are already signaling adjustments to capital allocation strategies. During its earnings call on Wednesday, MegaCorp Inc. announced it would slow its buyback program in anticipation of "potential shifts in the regulatory environment," and instead focus on expanding domestic manufacturing facilities. While the proposal faces hurdles in a divided Congress, its introduction alone has injected new uncertainty into the markets. Analysts caution that even if the measure is watered down or delayed, the political momentum behind curbing buybacks could persist through the upcoming election cycle, contributing to heightened volatility in the months ahead. The Senate Finance Committee is expected to hold hearings on the proposal later this month.