Déjà Vu? Tax Reform in the Senate?

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.

Upcoming Congressional Elections: Important

The following article originally ran as the Washington Report column in the September 2014 issue of the ESOP Report, the newsletter of The ESOP Association.

There is no doubt, no question, that The ESOP Association, from day one of its existence, is all about ESOPs. And with regard to the Association’s focus on its advocacy mission, or its ‘lobbying’ mission if you like, it is all about ESOP laws and regulations.

No matter what you, or anyone may think of the women and men who are elected by voters to serve in the Congress, the bottom line is this — what these people do, or don’t do about ESOP laws and regulations can aid, can improve, or can be the demise of your ESOP, your company’s ESOP, or your clients’ ESOPs.

So while the ESOP community will be the only ones in America who will pay very, very close attention to what is done to impact your ESOP, or not, by the Congress in passing new laws, repealing old laws, and overseeing the implementation of the laws by the regulatory agencies, it is important to be aware of the ‘big’ picture as defined by who will be re-elected in the upcoming 2014 Congressional elections.

As said time and time again by the Association and its leadership, the Association does not presume to tell ESOP advocates and participants in ESOPs how to vote. How a person votes is the prerogative of the individual.

At the same time, the Association has a fiduciary obligation to inform its members who in Congress is ‘for’ ESOPs, and who is openly showing through their actions that s/he is for ESOPs. The Association does hope that each ESOP advocate and participant will weigh how he or she decides to vote based on whether the person seeking re-election has become an advocate for ESOPs by her or his public actions while serving in Congress.

[Good news, as of this day, there is no evidence that any member of Congress is ‘against’ ESOPs and positive ESOP law. This was not always the case as recently as 2010, and in the late 70s until the late 80s, there were probably 10 or so members of Congress in that era that felt current ESOP law was a waste of taxpayer money, or the laws governing ESOPs did not result in ‘real’ employee ownership, and thus needed to be drastically altered. If a member of the current Congress feels this way, s/he has not openly said so, or proposed legislation to do so.]

There are many members of Congress seeking re-election, and in all fairness, are not to be condemned just because they are not on the ESOP Advocates list posted at http://www.esopassociation.org/advocate/advocacy-kit/esop-advocates; it is just that we do not have any public evidence that they have any position with regard to ESOPs because they have not done anything publicly to indicate favoring current ESOP law, or expanding current ESOP law, or opposing an agency’s position that would be detrimental to ESOP creation and operation. Please note, to be an ESOP advocate, the member of Congress must have taken a pro-ESOP position that is public — such as being a co-sponsor of a pro-ESOP legislative proposal, offering a pro-ESOP amendment in a Committee, and making a statement that is part of the permanent Congressional Record that is pro-ESOP. It takes more than being nice to ESOP advocates when they visit a Congressional office.

If any member of The ESOP Association wants details about an ESOP Congressional Champion who is seeking re-election, do not hesitate to contact Association President Michael Keeling, michael AT esopassociation DOT org

For example, he would share what Senator seeking re-election he thinks would single handedly try to stop negative ESOP tax law proposals by filibustering on the Senate floor. He would share what member of the House is serving on the key committees that handle ESOP legislation and ESOP oversight duties. He would help you weigh what you might do, and what you might share with your fellow ESOP participants, in terms of the question, “Does this member of Congress deserve my/our vote because s/he can protect and enhance our ESOP?”

Sure the elections coming in November are ‘big picture’ stuff that the left-wing and right-wing TV cable shows like to bloviate about ad nauseam; but understanding the part of the big picture important to the ESOP community is as important to each ESOP advocate and her/his family.

Stay Focused

This article originally ran as the Washington Report column in the October 2013 issue of the ESOP Report, the newsletter of The ESOP Association. The ESOP Report newsletter is available to Association members on the website.

With the conclusion of Employee Ownership Month, we thought it was an important message to stay focused on your ESOP.

There is no question that the mess in D.C. with the Congress and the President not able to keep basic government functions operational causes most people to throw their hands up and say, “Don’t bother me about possible legislative action involving ESOP laws; Congress cannot even keep the government’s doors open. Fie on all.”

This reaction dominates citizen views, be they left, right, middle of the road, or all of the above.

This column has often said that the effective advocate has to understand the Big Picture to win a specific campaign for ESOPs. But, as Ralph Waldo Emerson said, a foolish consistency is the hobgoblin of small minds.

So, ESOP advocates will be taking a very risky posture to tune down outreach to their members of Congress on the grounds that Congress will do nothing to alter current tax laws to the detriment of employee owners.

Number one, the Congressional tax committees are not Congress. What they do in developing new tax laws is not 100%, or even 50%, determined by the Congressional and White House gridlock.

Number two, what the tax committees do is 90% of the final tax law changes that will be included in a reformed tax code when action by Congress is finally taken.

In other words, the tax committees may finalize their versions of a new tax bill in 2014, and Congress may not send a new tax reform proposal to the President until 2015/2016 or even beyond. But that 2015/2016 proposal will be very likely be nearly the same as what the tax committees agreed to in 2013/2014.

Number three, what is the negative outcome of ESOP advocates continuing to make the case that the Federal tax code should continue a modest national policy to continue the best jobs policy in the U.S. because ESOP companies in the vast majority of instances are more productive, more profitable providing locally-controlled, sustainable jobs with excellent retirement savings benefits? There is none.

Some ESOP advocates also explain their sitting on the sidelines because her or his member of Congress is not on the Congressional tax committees — the House Ways and Means Committee and the Senate Finance Committee. Constituent to member advocacy is the most effective advocacy work possible; the second most effective advocacy work is Congressional member to Congressional member. In other words, a Republican member of Congress not on Ways and Means advocating for ESOPs because her or his constituent has asked him or her to do so with a Republican on the tax committee, especially if from the same state or region, is very effective. In other words, a pro-ESOP statement from a Texas Republican not on Ways and Means to a Texas Republican on Ways and Means or a New England Democrat not on Ways and Means to a New England Democrat on Ways and Means is priceless.

In sum, do not let disgust with partisan shenanigans in D.C. back you off advocating for ESOPs with your Congress people.

Be safe; not sorry.

Membership, Advocacy, and Education

This article ran as the Washington Report in the September issue of the ESOP Report. The ESOP Report is the newsletter of The ESOP Association. The ESOP Report newsletter is available to Association members on the website.

People who care about ESOPs, who are members of the Association, who do not wish to take a chance and dismiss, like TV pundits do, talk of ‘Congress will never do tax reform’ are asking, “What can we do to protect ESOPs and what is the Association doing to protect our ESOP?”

For over 20 years, the answer to the ‘what can we do’ question has remained the same, and will remain the same — tell your ESOP story directly to an elected official who visits your ESOP company is first and foremost the way to protect your ESOP, and your company.

Sept Washington Report GRAPHIC V3And what can the Association do revolves around the circle set forth on the left:

In other words, to win for ESOPs, the Association needs members, and needs the number of members to grow. Members are educated by various methods and primarily on how to make their ESOP all it can be, and how to reach as many employee owners as possible. When the company succeeds, because of its success, its performance, its unique ownership culture, then the Association and its members’ advocacy work persuading members of Congress to continue a positive policy for ESOP creation and operation is going to succeed.

Fewer members, declining membership means less education on how to create the magic of an ESOP company that has caused elected official after elected official to learn firsthand how positive employee ownership through the ESOP model works. Less education means that the positive impact of an ESOP company dissipates, and macro research on the performance of an ESOP company declines. Fewer magical ESOP companies means fewer high performing ESOP companies as they are not tapping the reservoir of knowledge available at Association meetings and networking. The fewer companies, with not so stellar track records means that the advocacy message becomes less heard, and less impressive.

Sure these big picture messages are supplemented in the challenging times of ESOP cynics trying to denude ESOP tax benefits in the name of a simpler tax code, with lower tax rates. But the Association is not sparing any of its resources in fielding government process experts, who know the nuances of how laws are made — in other words, fielding a team of inside the beltway veterans of legislative campaigns involving tax laws — who provide intelligence that triggers timely, and targeted advocacy messages to key members of Congress by grass roots, high performing ESOP companies.

But never ever think that winning for ESOPs is about how many members the Association has, how many members move their companies to high performance, or how much advocacy messaging is done. Membership without education does not win. Education without advocacy does not win. Advocacy without membership does not win, and the circle of victory can be described back and forth on these three mega traits in as many permutations as can be done with three interconnected elements.

Remember the diagram.