A new excise tax on stock buybacks went into effect Jan. 1 and has been followed by what seems to be an unexpected development: corporate share repurchase announcements have exploded.

Buyback announcements this year are more than double last year’s pace, according to TrimTabs Investment Research. Chevron (CVX) has led the way, announcing a $75 billion buyback program over coming years with other big names like Exxon (XOM), Meta (META), and United Parcel Service (UPS) also making moves.

The flurry comes on the heels of a new 1% tax that will now be levied by the federal government every time a company makes a share repurchase. The news underscores how the current tax is clearly not stinging enough to curb the practice.

“I just don't think a 1% tax is really high enough to register," Joe Hughes of the Institute on Taxation and Economic Policy said in an interview, noting that companies are highly motivated to send cash to stockholders right now and buybacks remain more lucrative than other options, like fattening dividends.

“There's this relative tax advantage [to buybacks]," Hughes said, "where[as] dividends are taxed when they're paid." While buybacks also send money to shareholders in the form of higher stock prices, they only are taxed as capital gains down the road when the stock is sold.

Perhaps another reason for the continued appeal of buybacks is that they give "management more of the win than shareholders [because] if they pay out that money in dividends, it's gone, it's to shareholders," posits finance author Dr. Richard Smith. Meanwhile buybacks can easily be paired with new executive stock options simultaneously — as some companies have done.

Some announcements this year like Chevron's have included a dividend increase alongside the stock repurchase plans. But other companies, like Meta, maintained a dividend of $0.00.

Pressure from DC on a practice aimed towards 'rewarding their CEOs and shareholders'

The buyback surge this year also comes after President Biden announced his support for an even higher rate — calling for a quadrupling to 4% — in his State of the Union address .

He laid into the buyback plans of oil companies during the speech, saying “they invested too little of that profit to increase domestic production” and instead used the money for “rewarding their CEOs and shareholders.”

Many in corporate America defend the practice, saying buybacks are often the best use of outstanding capital at any given moment and that, by definition, they increase shareholder value.

Either way, it appears there may be a bigger-than-expected windfall to the U.S. Treasury in the years ahead. The buyback tax was enacted as part of the Inflation Reduction Act and was projected at the time to bring in about $74 billion over the coming decade given an expectation of $7.4 trillion in buybacks over that span.

But buybacks announcements so far in 2023 are on pace to break last year’s record of over $1.2 trillion for this year alone.

Chances of a higher rate on buybacks ‘down the road’

When it comes to eliminating the tax advantage between buybacks and dividends, Hughes has run the numbers and the results are stark. For an excise tax to generate the same revenue as a dividend, a rate on buybacks should be “probably somewhere in the neighborhood of 10% to 12%,” he found.

Politically, that rate is clearly off the table for now, but Washington may nevertheless be poised to do more in the years ahead.

Sen. Marco Rubio (R-FL) released a report in 2019 that underlined issues he has with corporate behavior — including underinvestment in research and development. One of conclusions: The U.S. “should also address the increasing prevalence of share repurchases, often called stock buybacks.”

Stifel Chief Washington Policy Strategist Brian Gardner added in a recent Yahoo Finance Live Interview that a further hike on buybacks has little shot right now, but is a bipartisan possibility down the road. He said the existence of the 1% tax means “each party can look at it and dial the number that they want to raise revenues.”

Smith agreed that hikes could be considered in coming years, adding that perhaps buybacks are surging right now because “the companies see the writing on the wall that the tax is going to be higher eventually.”

Ben Werschkul is Washington correspondent for Yahoo Finance.

Click here for politics news related to business and money

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube