The following article originally ran as the Washington Report column in the February 2015 issue of the ESOP Report, the newsletter of The ESOP Association.
Déjà Vu? Tax Reform in the Senate?
Beginning with the results of the November mid-term elections, talk about the now Republican controlled tax committees new Chairs, Senator Orrin Hatch [R-UT] and Congressman Paul Ryan [R-WI] about re-writing the Federal tax code to lower the top rates and to get rid of tax “loopholes” was common. [By the way, a sidebar — never forget that the late Senator Russell Long [D-LA], the legislative godfather of ESOP tax benefits used to say that when it came to tax reform, the common refrain could be summed up as follows: Don’t tax me, don’t tax thee; tax that fellow behind the tree.]
Most so-called inside the beltway experts that appear on TV news cable shows opined, it will never happen, and who cares?
Well, maybe it is time to wake up to what Chair Hatch is doing in the Senate on an expedited schedule.
Some history for the reader: During the first quarter of 2013, the first session of the 113th Congress, the Chair of the House Ways and Means Committee, now retired Dave Camp [R-MI], began a process where members of the Committee, both Republicans and Democrats, were divided into “working” groups, or what one might call “ad hoc task forces” to study in depth certain generic areas of the huge Federal Income Tax Code — energy, retirement savings, foreign, etc. — and to develop recommendations to eliminate tax loopholes in the areas that task force was studying.
By late 2013, the task forces’ bi-partisan co-operation evaporated, as Democrats saw that increasing revenues was not part of the Republican agenda, as the Democrats wanted the higher income to pay enough to offset cuts in rates for the lower income plus add some money to the Federal basket to offset national debt, and to pay for more infrastructure funded by the Federal government, among other things.
Most of the inside the beltway cable TV pundits, left and right, proclaimed the tax reform effort dead. [Note: the effort came to a halt in the Senate when then Chair Senator Max Baucus announced his retirement to be Ambassador to China.]
Clearly Chair Camp had different ideas, and kept his Republican members at work, and from each task force, came up with recommendations, and in private meetings with Chair Camp and Republican members, developed the “Camp tax reform” proposal, which by the way, left ESOP tax benefits untouched.
Fast forward to right now. Chair Hatch, with some seemingly minor adjustments, has announced ad hoc task forces of his members of the Committee on Finance, with both Republican and Democrat members to develop recommendations in their areas, including one that will review all laws related to ERISA plans.
But here is the big difference; Chair Hatch intends his task forces not to study for 12 to 14 months and to make recommendations in 2016. He has instructed the leaders of each task force to make recommendations by March 2015 — which is just around the corner.
What is the word for ESOP advocates? Well, just because the Camp proposal did not diminish ESOP tax benefits, ESOP advocates should not assume that the Senate Finance Committee will not touch ESOP tax benefits. Over a 10 year period, under tactics for revenue estimates used in the past, getting rid of ESOP tax benefits would give the Committee around $14 billion over 10 years to put in the Federal Treasury and lower tax rates by that amount.
Here are the Senators that are on the task force that will decide initially what to say about ESOP tax benefits: Chairing the group is Senator Michael Crapo [R-ID], and his Republican members are Richard Burr [R-NC], Johnny Isakson [R-GA], Dean Heller [R-NV], and Tim Scott [R-SC]; the Democrat leader is Sherrod Brown [D-OH], and the other Democrats are Ben Cardin [D-MD], Bob Casey [D-PA], Mark Warner [D-VA], and Robert Menendez [D-NJ].
It is important that the positive ESOP message become front and center in these men’s minds as they do work on ERISA/ESOP issues, and that message must come from the ESOP advocates working in the ESOP companies in their states — i.e. their voters.
In due time, the Association will be reaching out to Idaho, North Carolina, Georgia, Nevada, South Carolina, Ohio, Maryland, Pennsylvania, Virginia, and New Jersey ESOP Association members refreshing memories about the macro evidence making the case for employee ownership through the ESOP model, while urging each ESOP company to tell their own story first and foremost.
As it often said: Stay alert, be motivated, and take action.