Commentary: Tax Reform and Employee Ownership

Two recent articles looked at the interaction between tax reform and employee ownership.

In a commentary on Fortune magazine's website, How Congress Can Pass Tax Reform That Actually Helps the Middle Class, Joseph Blasi and Douglas Kruse make the case that "The Trump administration's tax proposal reduces tax rates for corporations and for high-income individuals, but does not do much to increase the wealth of the middle class. The only way it could do that is by reducing taxes for companies that share profits or stock with employees." The authors make the case for the longstanding historical bipartisan roots of employee ownership, and call for "constructive Republicans and Democrats on the tax committees in the House and Senate to join together to design this workable bipartisan idea into realistic legislation."

Conservative support for ESOP tax rules will be critical in any tax reform, so it was encouraging that Ike Brannon, a visiting policy fellow at the Cato Institute, wrote a full-throated endorsement of the idea on the website of The Weekly Standard. Bannon's article, "How We Tax Employee-Ownership is One Thing our Screwed Up Tax Code Actually Gets Right," argues ESOPs are well worth their tax cost. He writes, "there's one area the tax code actually gets pretty much right: the taxation of S corporations and, in particular, S corporation employee stock ownership plans. While the tax code imposes double taxation on most corporations, taxing both profits of the firm and the proceeds paid to shareholders as dividends, S corporation profits are taxed only once, at the same rate as the other taxable income each shareholder earns."