The Promotion and Expansion of the Private Employee Ownership Act of 2014

As we continue discussions with our colleagues in Congress around tax reform and policies to grow the economy, one idea that seems to always enjoy broad and strong bipartisan support is private employee-ownership. Broadening ownership and boosting workers’ share of capital through retirement savings helps strengthen the economy and create jobs. That’s why we, together with six of our House Ways and Means Committee colleagues, have again introduced the Promotion and Expansion of Private Employee Ownership Act of 2014 (H.R. 4837).

A recent Harvard study says it’s no easier to climb the income ladder now than it was 20 years ago, a trend we should be focused on improving, especially since according to the Federal Reserve, one in five people who are near retirement age have zero money saved. With half of our workers devoid of retirement accounts, there’s no denying something needs to be done.

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Our bill, which had 97 bipartisan cosponsors in the 112th Congress, eliminates barriers that business owners currently face in establishing a new S corporation ESOP or expanding the employee-ownership stake in an S corporation.  Eighteen years ago, Congress created the S corporation ESOP structure to encourage and expand retirement savings, giving more workers in private companies the chance to own their companies through an ESOP, a qualified retirement savings program. 

More than 2,000 privately held "Subchapter S" corporations in the U.S. are owned mostly or entirely by their workers through broad-based employee stock ownership plans. Close to a million employees who are part of S ESOPs have retirement account balances on average three to five times higher than the average U.S. 401(k), and the funds invested come from the company's profits, not from the worker's personal funds.

In a recent report, economist Alex Brill said, “Beyond the immediate benefit they provide to employees and customers, S ESOPs’ positive outcomes yield benefits to the U.S. economy broadly.” The study, Macroeconomic Impact of S ESOPs on the U.S. Economy, also found total direct and indirect output from these companies is nearly 2 percent of gross domestic product.

When we visit employee-owned companies, we can immediately tell there is truly something special and different when employees have “the American Dream at Work.” As Congress contemplates measures to grow and retain good jobs and increase retirement security for American workers, we should look to employee ownership as a model that works. 

Reichert has represented Washington's 8th Congressional District since 2005. He sits on the Ways and Means Committee. Kind has represented Wisconsin's 3rd Congressional District since 1997. He sits on the Ways and Means Committee.

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