[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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