[Congressional Record (Bound Edition), Volume 145 (1999), Part 21]
[Senate]
[Page 31062]
[From the U.S. Government Publishing Office, www.gpo.gov]



                          S CORPORATION ESOPS

  Mr. BREAUX. Mr. President, in 1996 and 1997, I supported the creation 
of S corporation ESOPs, which--while they may sound a bit obscure to 
some--are an innovative way of giving employees an ownership stake in 
their companies and providing for their retirement.
  The design of these programs was quite deliberate, and intended to 
accomplish very specific policy objectives. We sought to create not 
only an administrable structure for these plans, but also a program 
that encouraged private businesses to give their workers a ``piece of 
the rock'' and help them save for their retirement. The law therefore 
allows some deferral of tax liability on current-year revenues of a 
participating S corporation, but of course only for that portion of the 
company's revenues that are put into the ESOP accounts of employees. 
That is to say, the deferral only exists so long as the monies are not 
realized by employee-owners; when they withdraw the funds for their 
retirement benefit, they also pay a tax, and in this case, at a much 
higher rate than standard capital gains.
  Recently, some have questioned whether this incentive should be 
eliminated. I am delighted that a strong bipartisan majority of the 
members of the Senate Finance Committee and House Ways and Means 
Committee have indicated they want to preserve the fundamental 
attributes of S corporation ESOPs. We have carefully scrutinized this 
matter in recent months, particularly in the context of the tax 
extenders legislation. We have determined that Treasury's proposal to 
eliminate the deferral aspect of S corporation ESOPs is a serious 
threat to the vitality of S corporation ESOPs. In rejecting this 
proposal, Congress has affirmed that--at a time when national savings 
rates are abysmally low, when Americans worry how they will fund their 
retirement, and when we in Congress worry about the future of Social 
Security--we cannot afford to undo such important programs.
  In response to Treasury's concerns with possible abuse of the system, 
we included a revenue raising provision in the extenders package to 
strengthen the 1996 law. However, the Treasury Department objected to 
the provision and it was dropped during the last minute negotiations on 
the bill. Secretary Summers has agreed to work with me over the coming 
months on a provision to strengthen and preserve broad-based employee 
ownership of S corporations through ESOPs in the future.
  Today, there are 100,000 or more workers in America who are using and 
benefiting from the S corporation ESOP rules that we designed. We have 
reason to be proud of this accomplishment, and to point to it as an 
example of how we are helping Americans build wealth for their futures 
and their families through private ownership. I believe more workers 
stand to benefit from this great opportunity, which is working as 
Congress intended. I believe, along with a strong bipartisan group of 
my colleagues, that we must do all we can to sustain and promote S 
corporation ESOPs. I appreciate the strong support of Chairman Roth and 
other members of the Finance Committee in particular to achieve this 
objective, and look forward to working with them on an ongoing basis 
for this very important cause.

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