[Congressional Record Volume 160, Number 122 (Thursday, July 31, 2014)]
[Senate]
[Pages S5300-S5301]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
EMPLOYEE STOCK OWNERSHIP PLANS
Ms. LANDRIEU. Madam President, I wish to reiterate my longstanding
support for employee stock ownership plans or ESOPs. During my time in
the Senate, I have been dedicated to building on the lasting
contributions of my Louisiana predecessors, including Senator Russell
B. Long, who, as Chair of the Senate Finance Committee, championed tax
provisions to encourage corporations to adopt ESOPs. Senator Long
advocated for employee stock ownership as an ``issue that cuts across
party lines in an attempt to bring out the best in our free enterprise
system.'' He believed that ``it is only fair and right that those who
work to make this economy succeed should have an opportunity to share
in that success . . . [i]t is a matter of simple common sense and basic
equity.'' I couldn't agree more.
Designed to expand employee ownership of firms through stock
distribution to employees, over time, ESOPs have a proven track record
of encouraging capital expansion and economic equality for American
workers. The National Center for Employee Ownership estimates that 11
million people are employed by the roughly 12,000 companies that have
adopted ESOP and ESOP-like plans and estimates that ESOP participants
have about 2.5 times the retirement assets of individuals who do not
participate.
Last year, as chair of the Senate Committee on Small Business and
Entrepreneurship, I convened a roundtable to provide small business
owners, policy experts and other stakeholders an opportunity to express
their views and to solicit their ideas on making tax reform work for
small businesses. Participants argued in favor of a Tax Code that
rewards employer and employee ownership as a means of providing
continuity of business ownership and opportunities for employees of
businesses to build wealth. Specifically, participants favored
retaining the current Tax Code's ESOP provisions, noting that during
the most recent economic downturn, ESOPs, which are predominately small
businesses, were able to retain more employees as they weathered the
crisis than conventionally owned companies.
Companies in Louisiana have embraced ESOPs and as a result have seen
both businesses and their employees realize the benefits. One prime
example is Acadian Ambulance, a Lafayette, Louisiana-based company, and
the Nation's largest private, employee-owned ambulance service. Acadian
Ambulance became a 30 percent-employee-owned company in 1993 and
subsequently became a majority employee-owned company in 1998. Today,
Acadian Ambulance is a thriving business whose employee owners have
retirement security because of Acadian Ambulance's employee stock
ownership plan. Its ESOP Committee has been recognized as one of the
best in the Nation, having won 25 regional and national awards since
2001. Acadian Ambulance has grown to over 200 ambulances, a $180
million budget, and 2,000 employees who have retirement security.
Earlier this year, the New York Times published an article describing
the research of three labor economists who have focused their work on
promoting ESOPs as a ``new perspective on how to resolve the
disparities in wealth and income.'' I ask unanimous consent to have
printed in the Record the New York Times article, dated February 11,
2014, and titled, ``Whatever Happened to `Every Man a King'?''. These
experts, Dr. Joseph Blasi and Dr. Richard Kruse of Rutgers University,
and Dr. Douglas Freeman of Harvard University, argue in their book,
``The Citizen's Share'', that policies promoting employee ownership
date back to the era of the Founding Fathers and have garnered support
from politicians and stakeholders across the political spectrum--from
Ronald Reagan to Senator Bernie Sanders.
Quite simply, policies that promote ESOPs are policies that merit
this Chamber's bipartisan support and I will continue the work of my
Louisiana predecessors to ensure retirement security for working
Americans.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the New York Times, Feb. 11, 2014]
Whatever Happened to ``Every Man A King''?
(By Thomas B. Edsall)
A passionate group of labor economists has taken up a cause
championed 40 years ago by Senator Russell Long of Louisiana:
to turn every worker into a capitalist. Long, the chairman of
the Senate Finance Committee from 1966 to 1981, inherited a
populist commitment from his father, Huey Long, the Louisiana
governor who famously campaigned on the slogan ``Every Man a
King.''
In 1973, Long became intrigued by the idea of granting
corporations generous tax incentives to distribute stock to
employees through Employee Stock Ownership Plans, or ESOPs.
Long's question was, could ESOPs ``make haves out of the
have-nots without taking it away from the haves?'' Working on
assurances that this was indeed the case, Long said, ``That's
the kind of populism I can buy.''
Beginning in 1974, Long won enactment of a series of bills
establishing tax incentives favorable to corporations that
transferred company stock into ESOPs. In 2012, the National
Center for Employee Ownership estimated that the number of
ESOPs had grown to 12,000, covering 11 million workers with
$858 billion in assets. Companies employing at least 10,000
workers with ESOPs include Publix Supermarkets; WAWA; WinCo
Foods; and the employee-owned private equity firm, Alliance
Holdings.
After Long retired in 1987, however, some of the tax breaks
he sponsored were eliminated or weakened as Democratic and
Republican administrations sought new federal revenues to
reduce the deficit.
Robert Hockett, a law professor at Cornell, wrote in 2006
that ESOPs had expanded employee ownership of firms, but that
``there is indeed a gap to be filled--that firm ownership
remains nowhere near as widespread as home and human capital
ownership.''
Now three prominent labor policy experts have taken up
Long's cause. They are convinced that a major expansion of
employee ownership is the most effective tool available to
remediate inequality. The three experts--Richard B. Freeman
of the economics department at Harvard, and Douglas L. Kruse
and Joseph R. Blasi, both professors at the School of
Management and Labor Relations at Rutgers--have been
promoting worker capitalism in numerous papers and books.
Together they edited ``Shared Capitalism at Work: Employee
Ownership, Profit and Gain Sharing and Broad-Based Stock
Options'' and last year they released ``The Citizen's Share:
Putting Ownership Back into Democracy.''
In ``The Citizen's Share,'' Blasi, Freeman and Kruse make a
broad, ideologically cross-cutting case on behalf of profit
sharing and employee ownership: ``It offers a new way to
address the concentration of both economic and political
power that many citizens believe is distorting the country.
It offers a new perspective on how to fight the links between
the Washington politicians, K Street lobbyists, big
corporations, and political donors that fuel many Tea Party
members' opposition to government. It offers a new
perspective on how to resolve the huge disparities in wealth
and income.''
They make the following specific arguments.
First, they contend that policies promoting employee
ownership have strong public support and that these policies
reflect the convictions of the founders, including Thomas
Jefferson and James Madison.
Politicans on both sides of the partisan divide support
ESOP proposals.
Senators from the left, including Democrats Ben Cardin of
Maryland, Amy Klobuchar of Minnesota, Mary L. Landrieu of
[[Page S5301]]
Louisiana and Debbie Stabenow of Michigan, and senators from
the right, including Republicans Roy Blunt of Missouri, Pat
Roberts of Kansas and John Thune of South Dakota, are, for
example, co-sponsors of the Promotion and Expansion of
Private Employee Ownership Act of 2013.
As far back as 1974, Ronald Reagan, then governor of
California, strongly endorsed the concept, telling Young
Americans for Freedom that ``capitalism can work to make
everybody a `have.''' In an analysis reminiscent of Russell
Long's, Reagan said:
``Income, you know, results from only two things. It can
result from capital or it can result from labor. If the
worker begins getting his income from both sources at once,
he has a real stake in increasing production and increasing
output. One such plan is based on financing future expansion
in such a way as to create stock ownership for employees. It
does not reduce the holdings of the present owners, nor does
it require the employees to divert their own savings into
stock purchases.''
Second, Blasi, Freeman and Kruse point out that there are
already extensive mechanisms in place for employee ownership,
not only formal ESOPs but also a variety of profit-sharing
plans. Because of this, they argue, major innovations are
unlikely to be needed; improvements in existing laws and
practices should suffice.
The authors cite responses to a question on employee
ownership asked in a 2006 General Social Survey. The survey
found that 47 percent of private-sector, full-time wage and
salary workers now have access to some form of sharing in the
firm where they work--cash profit sharing, cash gain sharing,
employee stock ownership, employee stock options or ESOPs.
Third, and most important, is the authors' claim that it is
economically advantageous to give employees an ownership
stake in the firm for which they work. Blasi, Freeman and
Kruse provide evidence that employees with some form of
worker ownership accumulate more savings than employees in
nonparticipating firms and that firms with some form of
capital sharing perform better in the competitive marketplace
than those that do not.
They write that ``workers with profit sharing or employee
stock ownership are higher paid and have more benefits than
other workers. This means that the substantial profit sharing
and gain sharing and ownership stakes for the typical worker
in these plans tend to come on top of, not in place of, fair
fixed wages and benefits.''
In addition, the authors cite studies showing sharp
increases in productivity, higher employee morale, lessened
turnover and fewer bankruptcies in corporations that adopt
ESOPs.
These findings raise a series of questions.
If the various forms of worker capitalism or profit sharing
produce such benefits, why hasn't the free market itself
forced every company to adopt similar plans?
Asked about worker ownership, Robert Frank, an economist at
Cornell and a specialist on issues concerning inequality,
wrote in an email that he is ``skeptical,'' and cites his
analysis of employee ownership in his book, ``The Darwinian
Economy,'' in which he argues that if a worker-owned firm has
all the advantages its proponents claim:
``It would enjoy a prodigious competitive advantage. Since
wages account for about 70 percent of a typical firm's total
cost, increasing productivity by 15 percent would reduce
total cost by more than 10 percent. The firm could cut its
prices by almost that amount and still remain profitable,
which would enable it to peel off most of its rivals'
customers.''
Frank pointed out that ``any firm that enjoyed these
advantages should sweep the market like a prairie fire,
reaping enormous profits in the process.''
Freeman addressed this question in a series of email
exchanges with me. He began by noting that there is
management opposition to profit sharing with rank and file
employees ``because the people who control the firm may have
to take lower profits--if I am in charge of the firm and
sharing profits with you raises productivity, but it means
that I take less in profits, I will not favor going to a more
shared system.''
In addition, Freeman argued, ``magnitudes are important.''
The gains from employee share programs are modest, a
``productivity edge of about 2 percent or so on average,''
which may be trumped by other marketplace factors, including
``some small monopoly advantage'' held by competitors.
Freeman emphasized that many liberal-left economists and
policy makers are locked into the view that labor and capital
are intractably adversarial. Consequently they ``favor a
European style big government/strong union solution to
inequality'' rather than solutions of a more cooperative
nature such as ESOPs.
Blasi, in a more detailed response, emailed that ``both
Democrats and Republicans until recently really believed that
inflation-adjusted wage income growth or lowering taxes alone
could maintain and grow the middle class.'' In fact, Blasi
argues, changing economic conditions dictate that ``the
sustaining of a middle class and mobility requires a capital
ownership and a capital income policy.''
In addition, Blasi writes, the ``economic share policy
tradition in American history has been sidelined by scholars
in the modern and post-modern era. Until now, if you argued
for ESOPs you were using `small ball' ideas.''
Liberal opposition to ESOPs is based in part on the view
that the program amounts to a collection of tax subsidies for
corporations and the wealthy. The tax breaks for ESOPs
originally included a tax credit for company contributions: a
deferral of taxes on shareholders who sell stock to an ESOP;
deductibility of corporate dividends on ESOP-held shares; the
exclusion from tax liability of 50 percent of the interest
income from loans to an ESOP; and a 50 percent estate tax
exclusion on the gain from the sale of shares to an ESOP.
Blasi, Freeman and Kruse acknowledge that some critics see
ESOPs as pioneering ``a form of special-interest tax
incentives from the Treasury.'' Their counterargument: ``We
see the ESOP as the continuation of the Founders' desire to
reduce inequality and preserve democratic practices by
extending property ownership to more Americans.''
The Blasi-Freeman-Kruse proposal has the crucial political
advantage of appealing to some on the political right because
it would, in fact, make employee share programs more
attractive by boosting tax subsidies--a form of cutting
taxes.
Most significantly, the Blasi-Freeman-Kruse proposal stands
apart from alternate policy initiatives designed to address
growing inequality because it directly addresses the
concentration of wealth and political power at the top.
For that reason alone, the idea of expanding employee
ownership deserves serious consideration. The proposal does
not resolve the question of how to give workers a
sufficiently large share of capital to materially impact
their economic status. Still, there are not that many viable
options available to those who are committed to improving the
disadvantaged position of labor versus capital. Politicians
and policy makers cannot afford to disregard a proposal with
demonstrable potential.
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