Once Again: Save ESOPs

The following is a reprint of the Washington Report column which ran in the July 2013 ESOP Report, the newsletter of The ESOP Association.The ESOP Report is a members only publication. Additional information can be found here.

It sounds repetitious, but the Association has posted on its blog, on its Facebook page, on its LinkedIn group, in special email bulletins, and wherever it can be placed, that events are shaping up in our national government that present the greatest policy threat to positive policies for ESOPs since 1989. [Some ask, what was the threat in 1989? While ancient history so to speak, in 1989 the House Ways and Means Committee had before it a proposal made by the Chair at the time, the late Dan Rostenkowski of Illinois, to repeal all special tax benefits for ESOP creation and adoption created in the tax bills of 1984 and 1986. This threat was beaten back when the full Committee adopted an amendment by former Congressman Beryl Anthony of Arkansas, aided by former Congresswoman Nancy Johnson, and this is important to note, endorsed by the Treasury Department under President George G.W. Bush, that took down the effort to eliminate special ESOP tax benefits. Since 1989, there have been occasional “disputes” challenging the ESOP community over a proposed regulation, or even a proposal modifying one ESOP tax benefit — 1994, 1995, and 2001 — but never a challenge to the entire ESOP package.]

But experts in the human resources profession always remind us that just as “you get tired of saying something one more time, someone is listening for the first time.”

So, the House and Senate tax committees are deep in a process to reform the Federal income tax code. They are not just talking, nor are they waiting to have the leaders of the House and Senate promise them that any tax reform bill they develop will be considered on the floor of the House and/or Senate. The Chairs of the tax committee, Congressman Dave Camp of Michigan, House Ways and Means Committee, Senator Max Baucus, Senate Finance Committee Chair, both have a process for developing legislation sometime in the fourth quarter of this year.

While they are following processes that are not typical of how major tax bills were developed in the past, the goals are the same as evident in the past — eliminate special income exclusions, credits, deductions, and deferrals in the current tax laws, take the additional tax money raised to cut the tax rates on income, personal rates and corporate rates, and in doing so make the tax code more simple, in other words, easier to follow in calculating taxes owed. [Media likes to hoot and holler that the two parties will not come together under this approach because supposedly the Democrats want to use the extra revenue from eliminating special tax laws to collect more money to lower the Federal debt, whereas Republicans want to use all the new revenue to lower tax rates. Yes, these two different views of what to do with the extra revenue exist, but there is a great deal of common ground between the two parties in the tax reform debate.]

Even though The ESOP Association has become a “Johnny-one-note” in communications with members about being engaged to tell elected Federal officials about the power of employee ownership through the ESOP model — repeat over and over after telling the good story of the ESOP company that data proves overwhelmingly that in the vast majority of instances, ESOP companies are more productive, more profitable, providing sustainable jobs controlled locally in the U.S. than non-ESOP counterparts — and in doing so, hopefully have that member of Congress be willing to say, “OK, do not harm ESOPs with misguided steps to lower tax rates when the best jobs policy is having employees be owners in their companies where they work, and also make income better for the working men and women of America.”

Stay in touch with the Association’s website where you can find all the up-to-date background materials on how to save your ESOP; watch for blog postings, and if just now getting engaged, read the blog archives; watch for YouTube video updates.

Remember, if ESOPs are harmed in the process to developing new tax law, one can spot the blame by looking in the mirror — no exceptions.

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