What, “We” Worry?

This article originally ran in the December 2013 issue of the ESOP Report, the newsletter of The ESOP Association. Archived issues are available on The ESOP Association’s website.

We’re a week + into 2014 but this column is a nice reminder for members of the ESOP community.

Many will recall that in the last quarter of the 20th Century, Alfred E. Neuman, the face of the then famous Mad Magazine, captured the public’s fancy with his slogan, “What, Me Worry?” complete with a silly expression. The ESOP community needs to avoid the “What, Me Worry” view of possible rewrites of the Federal income tax laws that impact ESOP creation and operation because cable news TV keep telling audiences that Congress will not pass a tax reform bill.

The ESOP Association will continue to take a different view, and yes, ESOP advocates should worry about tax laws impacting your ESOP accounts and your ESOP clients until…

Later, this column will give the signal when it’s safe to stop worrying.

Here is an analysis that goes beyond the superficial media reports.

Tax reform is important to the ESOP community without regard to whether the House of Representatives considers tax reform legislation in 2014; without regard to whether the Senate considers tax reform legislation in 2014; without regard to whether tax reform legislation lands on President Obama’s desk in 2014.

Why say it’s important even after saying legislation is not going to be considered by the full Congress and thus never become law in 2014?

Simple — tax law history. Regarding major tax legislation, what the House Ways and Means Committee agrees to, becomes the foundation for what actually makes it to a President, the same year, the next year, or even the next two to four years.

Let’s get specific. In 2014, if the House Ways and Means Committee reports to the full House a tax reform bill that repeals the current favorable tax treatment of S ESOPs, or the cap gains deferral for sale to an ESOP of stock of a privately held C corporation, or the tax deduction for dividends paid on ESOP stock by a C corporation, or the possibility that both principal and interest are tax deductible for payments on a loan to acquire employer stock for the ESOP, or contributions to an ESOP are capped along with all other ERISA dc plans at a level below current law, or any other schemes to raise tax revenue by limiting the benefits of an employer sponsored retirement savings plan, then any of the above in a tax reform bill recommended by the Ways and Means Committee has better than a 50% chance of being law someday. [This sentence was long for a reason — to explain that some provisions of a tax reform bill could impact your ESOP and not be labeled an “ESOP” provision.]

So, during this special time of year, one might welcome the New Year with the false serenity that their ESOPs are A-OK in terms of the year 2014, and back off on the goal of educating, or re-educating, their members of Congress that ESOPs are good for the employees, good for the company, good for the community, and good for the United States.

It is time to toast the New Year, and to rededicate to the principle that persistent repetition is the best policy with regard to making sure our modest national policy promoting employee ownership through the ESOP model is continued.

And to answer the “until” question above, the following words, “Until the Chair of the House Ways and Means Committee says firmly, with no ifs and buts, ‘The Committee will not recommend a tax reform bill in 2014.’” And he just might say no to a tax reform bill at some point in 2014, but why take a nap thinking he will.

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