This article originally ran as the Washington Report column in the November 2013 issue of the ESOP Report, the newsletter of The ESOP Association. The ESOP Report newsletter is available to Association members on the website.
Maybe the reader is tired of reading it — or as in the case of Las Vegas, or one of the many Chapter conferences since August — tired of hearing it. But, the tax reform process has begun, and it is real. There are those who think all the talk about tax reform and the potential impact on ESOPs is malarkey because this Congress, and this Administration, cannot agree on the basics, such as a farm bill, or a highway bill. Who would ever dream a tax reform bill would go to President Obama? Sort of a “what me worry” attitude.
To repeat the basics — since early September, the House tax committee’s Republican members have been meeting in closed door sessions regularly to decide on how to raise approximately $10 trillion in new taxes over 10 years in order to lower the top rate for businesses and individuals to 25%, and to lower the top rate for all middle and lower income persons to 10%. In short, to lower tax rates drastically, but to not increase the Federal deficit, means “new” revenue has to be collected by eliminating, or drastically reducing, nearly all special tax laws, such as those benefiting ESOP creation and operation. [Other provisions that might have to go, or be reduced, are home mortgage deductions, charitable giving deductions, local government tax exempt bonds, and capital gains differential, for example. In other words, everything from super big, to middle sized, down to small sized tax benefits. ESOPs would be in the middle sized small benefit at an estimated $2 billion a year.]
As of this writing, the committee, the House Committee on Ways and Means, has not released its final recommendations, but a release is anticipated.
Cynics who say that a tax reform bill is not something to worry about are correct for two reasons — 1.) what the Ways and Means Committee does with legislation will probably not attract Democratic votes, and 2.) it will also not result in President Obama, nor the Senate, agreeing on the Ways and Means Committee bill.
As has been said over and over and over, however, — and how about saying it again over and over and over — Congress will eventually pass a tax reform bill. Whoever is President will sign such a bill, be it President Obama, or his successor. And that bill will, if past is prologue, look very much like the first one passed out of the House Ways and Means Committee. This fact is why what is happening now is important to all ESOP advocates.
The ESOP community must fully engage in telling the wonderful success story of how the vast majority of ESOP companies are providing jobs, good sustainable jobs; but most importantly, displaying the unique “vibe” present in the overwhelming majority of ESOP companies.
Sure, if ESOPs get hurt in the provisions of a House Ways and Means Committee bill, there will still be a chance to protect ESOPs in the Senate process. [Consider the trivia question put to Las Vegas Conference attendees recently — what do the last four Presidents have in common? Answer: They all lost their first race to be a member of Congress. Did they give up their political careers as a result? Obviously not, as all became President.]
But why play with fire? The tax reform process is underway, big time, in the House Ways and Means Committee. Now is the time to convey the view that Congress should preserve and promote the best jobs program in America — ESOPs.