ESOP Support: Trending Democrat or Republican? Or Still Bi-Partisan?

The following article originally ran in the August 2012 issue of the ESOP Report, the newsletter of The ESOP Association, as the Washington Report column. Archived issues of the ESOP Report can be found in the members only section of the Association’s website.

With the quadrennial Presidential election season here, with the two candidates for President — President Barack Obama for the Democrats and Governor Mitt Romney for the Republicans — and with many very contested races in the U.S. Senate and the U.S. House of Representatives up for grabs, many in the ESOP community ask, “Who is most for ESOPs? Democrats or Republicans?”

On a case by case basis, that question cannot be answered. As noted in a YouTube posting on July 25, 2012, President Obama said once at a “town hall” like meeting in Virginia, where he gave a general explanation of what an ESOP is, that employee ownership should be encouraged. Governor Romney when visiting an ESOP company in New Hampshire said he thought it was good for employees to have “skin in the game.”

But neither said anything to indicate that he would openly and sincerely push for laws to encourage ESOP creation and operation, or even to protect current beneficial ESOP laws, as President Ronald Reagan did. Nor has either released a statement specifically endorsing ESOPs as Senator John McCain did when he was running for President in 2008. (Note, however, the long-time, strong support by Congressman Paul Ryan, the Republican Vice Presidential nominee here.)

So, in trying to decide if either party is more pro-ESOP than the other, so far in the 2012 Presidential campaign, best to leave the two candidates for President on the sidelines right now for purposes of this Washington Report. [Some have set forth that the actions of the current Administration’s Department of Labor that are not favorable to ESOPs should be determinative of whether President Obama is for positive ESOP laws. But, Democrats in the ESOP community rightfully note that ESOPs are not that big of a deal to have White House attention, given the challenges on the President’s desk daily. On the other hand, Republicans in the ESOP community stake out a claim that the “CEO” of the Federal government, the President, should be accountable for what a “division,” the Department of Labor, does or does not do.]

And, clearly there are men and women in Congress who are voting with the most “liberal” view of national policy who are demonstrating very strong pro-ESOP positions, such as Senator Sanders [I-VT], and others, such as Senator Ayotte [R-NH], thought to be representing the more conservative view of national policy  that are just as pro-ESOP. And these case by case comparisons could go on and on.

One metric that is more macro yields more clear cut evidence that in the House of Representatives overall, up to this point, more Republican members of the House have taken pro-ESOP positions in the current Congress compared to Democrats in the House.

In the current Congress, there is one clear cut, pro-ESOP bill pending designed primarily to increase tax incentives for the creation of S ESOPs, and to rectify an SBA policy that is biased against all majority owned ESOPs. The bill, H.R. 1244, was introduced by a bi-partisan group of six members of the House Ways and Means Committee, where all tax laws originate — three Republicans and three Democrats — on March, 29, 2011.

Now, after many ESOP companies have asked their members of Congress to co-sponsor the legislation, H.R. 1244 has 86 members of the House saying that they are “for” this pro-ESOP legislation, or 19.7% of the total number of members of Congress. 63.9% of these 86, or 55, are Republican members of the House, while 36%, or 31, are Democratic members of the House. But these numbers have to be taken in the context of how many Republicans are there in the House compared to Democrats. 55.6% of the House members are Republicans, so the 63.9% is not that much more than the total percentage of Republican members in the House, whereas the Democrats make up 44.3% of the House, and the spread to 36% is a little more, but not much.

But on the House Committee, the House Ways and Means Committee, where the key laws impacting ESOPs originate, the spread between Republicans and Democrats is more telling. 48.6% of the members of the House Ways and Means Committee’s 37 members, or 18, are sponsoring H.R. 1244. [To really feel safe in the upcoming tax reform legislative effort, the ESOP community needs at least 28 or so men and women on the Committee to be “for” ESOPs.] But of the 18, 13 are Republicans, or 60% of that group, and 33%, or five of the 15 Democrats are sponsoring H.R. 1244.

On the Senate side, there is considerably more legislation pending that can be labeled pro-ESOP.

There is the pro-S ESOP tax law changes and SBA change for all ESOPs in S. 1512. Its overall support is similar to the House — 17 Senators are sponsoring, or 17% of the Senate. [The Senate has 100 members so math is real easy to calculate in the Senate.] The split is remarkably even, and nearly the same as the overall split in the Senate. Eight of the 17 are Democrats, seven are Republicans, and two are officially Independent. The primary sponsor, who dropped the bill, as they say in Congress, was Senator Ben Cardin (D-MD), a Democrat.

In the Senate, the key tax committee is the Committee on Finance, which really gave birth to modern ESOPs in the mid-70s when Democrat Russell Long of Louisiana was Chair. But in this Committee, support for S. 1512 is not as impressive as support for H.R. 1244 is on the House Ways and Means Committee. Only four Senators on this key Committee are “for” S. 1512, two Democrats and two Republicans.

Now the Senate has other, non-tax pro-ESOP bills, one primarily supported by Republican Senators trying to stop the DOL’s proposed regulation to make ESOP appraisers ERISA fiduciaries, and two bills primarily to have government programs to help finance ESOP transactions, and to have DOL actually promote employee ownership and participation.  These last two bill were just introduced, its five sponsors are four Democrats, and the lead author is Senator Sanders, who caucuses with the Democrats in the Senate. The stop DOL bill, authored by Senate Ayotte, has six other sponsors, but only one is a Democrat.

Both Senator Ayotte and Senator Sanders are seeking more support for their bills — S. 1232 by Senator Ayotte, and S. 3419 and S. 3421 by Senator Sanders. [See June 2012 and July 2012 issues of the ESOP Report for details.]

Bottom line: The ESOP community can feel pretty good that support for ESOPs still crosses party lines in nearly all these metrics, except perhaps the metric of support for the current pro-ESOP tax bill H.R. 1244 among members of the key tax committee, the House Ways and Means Committee.

And, despite what cable TV says, having broad based support pays off for an interest group in the long run, as the wheel of fortune for the political parties is always turning, and what does go around, comes around.

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