By J. Michael Keeling, ESOP Association President
I often hear three criticisms about ESOPs: The second criticism is that ESOPs are a waste of taxpayers’ money. (For a discussion of the first criticism, see the Jan. 31 blog post.)
Cynics say the tax breaks provided to ESOPs are money losers because the majority of American taxpayers pay higher rates to make up for the cost of ESOP tax benefits.
But anyone who says that must not have done very well in elementary school when they learned basic math. ESOPs offer great returns on tax incentives.
It is true that there are estimates that ESOP tax benefits lower Federal tax revenues by as much as $2 billion a year. And yes, that is a great deal of money. But that money is not wasted. In fact, it generates a healthy return on investment.
Is starts with this fact: The most recent research conducted through the prestigious General Social Survey and funded by donations to the Employee Ownership Foundation shows that individuals at companies with employee stock ownership were laid off at a rate 7.3 times lower than those in companies with no stock ownership. (For more, see the Jan. 17 blog post.)
Look at the amount of tax revenue the federal government doesn’t collect when an employee isn’t on the job. Calculate that for all the people who retain their jobs at companies with employee stock ownership and you find that by keeping people employed, those companies help the federal government pull in $8 to $10 billion each year.
Put another way, the $2 billion invested in companies with employee stock ownership generates a return four to five times greater.
Anyone who thinks that is a miserly return should stay away from your retirement account. With returns like that, most of us could retire much earlier than we planned.