Sen. Tammy Baldwin, D.-Wis., has questioned SEC rules that allow companies' ability to repurchase large quantities of their own shares. Here she consults with Sen. Elizabeth Warren, D.-Mass, another critic of corporate stock buybacks. Getty/Alex Wong

The topic of stock buybacks is quickly moving from the financial press to the national political stage. In the first substantive congressional attention the issue has attracted in decades, Sen. Tammy Baldwin, D-Wis., is pressuring the Securities and Exchange Commission to re-examine rules that have enabled corporate America to splurge on stock buybacks, a trend that some worry harms middle-class workers.

“There is mounting evidence to suggest that buybacks have a negative effect on jobs, wages, and investment,” Baldwin wrote in a letter to the agency Thursday.

U.S. corporations are at the height of a buyback bonanza. In the years since the financial crisis, publicly traded companies have spent more than $2.5 trillion repurchasing their own stock, a trend that has helped propel markets to record highs. Buybacks also tend to drive share prices higher, particularly in the short term. S&P 500 companies announced a record $104 billion in repurchases in February.

The practice has become standard operating procedure, with roughly three-quarters of the largest corporations buying back shares in 2014. Boards of directors often initiate buybacks to signal confidence in future stock performance. Other times, companies sop up outstanding shares awarded as stock options to employees.

But the loudest cries for buybacks often come from shareholder activists, who stand to win a greater share of future profits when companies buy up outstanding shares. General Motors recently bowed to external shareholder pressure and initiated a $5 billion repurchase program.

In an email to International Business Times, Baldwin noted that her home state has been affected by the trend: “Wisconsin’s paper industry has been targeted by hedge funds seeking to ‘unlock value’ by consolidating facilities and firing workers to boost share prices in the short-term.”

In 2013, the hedge fund Starboard Value LP pushed Mosinee, Wisconsin-based Wausau Paper to initiate a $100 million share repurchase program and relocate elsewhere. Last year, the hedge fund engineered a management shakeup at the 115-year-old company.

Baldwin’s letter asks the SEC to re-examine its policy of giving “safe harbor” to companies that buy back shares, a practice considered stock manipulation until a rule change in 1982. She also called on the SEC to share any work the agency has done on assessing the economic impact of buybacks in the past three decades.

Congressional critics of Wall Street practices have tended to focus more on banking regulation and CEO pay than stock buybacks, which have generated comparatively scant notice.

But now Congress is heightening its scrutiny of stock buybacks. The trend can be traced largely to the work of William Lazonick, a researcher at the University of Massachusetts, Lowell, who worked closely with Baldwin in drafting the letter. Sen. Elizabeth Warren, D.-Mass., cited his research in a congressional panel on income inequality last year.

“This evidence raises serious questions about the adequacy of the SEC’s rules governing repurchases on the open market,” Baldwin told IBTimes. “I look forward to working with the agency and other stakeholders to answer these questions and propose solutions.”

“It is a first, as far as I know, in terms of raising questions in Congress” about the SEC rule, Lazonick told IBTimes in an email.

Also in question are executives’ incentives to push for share repurchases. Baldwin noted that CEOs are more likely to issue buybacks when their bonuses will be affected, citing research that linked these kinds of repurchases to diminished employment and weakened internal investment.

Repurchases reduce outstanding share counts, which directly boosts earnings per share numbers, figures that are closely watched on Wall Street.

IBTimes has investigated corporations such as General Electric that have paired massive stock buybacks with reductions in employment and cuts to worker benefits. These companies adamantly maintain that buybacks have no impact on the workforce.

Many investors, moreover, doubt that share buybacks are destroying innovation. Research and development expenditures grew 12 percent between 2009 and 2012, according to the National Science Foundation. Investors argue that excess corporate cash, now at near-record highs, is more productive in the hands of shareholders than in corporate bank accounts.