GOP Sen. Marco Rubio's proposal to end preferential tax treatment of share buybacks is flawed, two Republican colleagues of the former presidential candidate told CNBC on Thursday.
"I don't see buybacks as a problem," Sen. Pat Toomey, R-Pa., said in a "Squawk Box" interview. "They occur after the investment has been made" in the business and the profits have been generated, he said.
Rubio, chairman of the Senate Small Business Committee, unveiled on Tuesday a plan to tax buybacks like dividends, which are subject to a wide range of rates, instead of have them fall under the capital gains rate.
A day later, in a tweetstorm promising a bill soon, Rubio, of Florida, blasted tax rules that are "in favor of inflating prices of shares at the expense of future productivity and job creation."
Toomey countered by saying, "This is where the fundamental flaw, I think, is in Sen. Rubio's underlying premise."
"That's not the way business managers run their business," contended Toomey, who worked in the financial industry before getting into politics. "They are making every good investment they can. Their goal is to maximize the return they can make. And it's only when they exhausted all those possibilities and they still have cash that they then make that allocation" to repurchase shares.
Critics of buybacks, including Senate Democratic leader Chuck Schumer of New York and Sen. Bernie Sanders of Vermont, argue that many companies could be making capital investments but choose repurchase plans instead because they boost stock prices, which benefits investors on Wall Street instead of workers.
In a Sunday New York Times op-ed, Schumer and former Democratic presidential candidate Sanders proposed legislation that would prevent companies from buying back their own shares unless they first pay workers at least $15 an hour and offer paid time off and health benefits.
Sen. Rick Scott, R-Fla., told CNBC on Thursday that he does not support Rubio's tax scheme on buybacks nor the Schumer-Sanders proposal.
"I don't believe we need to tell our companies, give them more rules. I want them to think about how they grow and create more jobs," said Scott, who before winning a Senate seat spent eight years as Florida governor and years as CEO of a major hospital chain.
"If companies can't figure out how to get a better return on the cash they have on their balance sheet, give it back to the shareholders," he added.