Will America Be 30% Employee Owned in 2010?

Are you ready for an America where 30 percent of all businesses are majority employee-owned with their boards of directors elected on a one shareholder - one vote basis?

Thatís the goal of Rep. Dana Rohrabacherís (R-CA) bill, The Employee Ownership Act of 1999. "It is the policy of the United States," the Bill declares, "that by the year 2010, 30 percent of all United States corporations are owned and controlled by employees of the corporations."

The ESOP Association calls Rohrabacherís bill "The most sweeping employee ownership legislation written since the establishment of ESOPs."

Congressman Rohrabacher, a former speech writer for President Reagan and one of the more conservative of House Republicans, is a long-time supporter of ESOPs. This measure, which he calls the "ESOP-plus-plus," would establish a new kind of corporation, the Employee Owned and Controlled Corporation (EOCC).

EOCCís characteristics:

(1) A controlling interest -- at least 50 percent -- of the EOCC voting stock would be held by a trust for the benefit of EOCC employees. To qualify as an EOCC, at least 90 percent of employees working 1000 hours annually would be covered.

(2) Employees vote the stock on all corporate issues, including electing the Board, on a one person, one vote basis. The bill obligates the trustee to vote the stock as the employees direct, and to vote unallocated shares in proportion to the allocated shares.

(3) Distribution and valuation rules correspond to existing ESOP rules.

The bill provides a variety of attractive new tax incentives for the EOCC. First, the EOCC is free of corporate taxation. Second, stock provided to employees in lieu of compensation is exempt from income tax during an initial three-year transition period. Third, employees who sell stock back to the EOCC or to a fellow employee pay no income tax on sales proceeds. Fourth, current owners of stock who sell to the EOCC Trust pay no capital gains taxes. Fifth, estates which transfer stock to the trust get a dollar for dollar tax credit against inheritance taxes. Sixth, outside investors in the EOCC will not pay taxes on 25 percent of dividends.

The ESOP Association calls Rohrabacherís bill "The most sweeping employee ownership legislation written since the establishment of ESOPs."

The bill also calls for establishing a Presidential Commission on Employee Ownership that includes both non-managerial and managerial employees of companies which are currently at least 50 percent employee owned as well as researchers, employee-ownership nonprofit organizations, and government representatives.

In introducing HR 1462, Rohrabacher invoked both federal policy on home ownership in this century and the Homestead Act of 1862 which opened federal land for homesteading. Both are outstanding historical precedents for broadening property ownership.

"This legislation, I predict, will be as significant to the American people as the homeownerís mortgage deduction," Rohrabacher began, "which has ensured the widespread ownership of homes through the United States. Sixty percent of the American people own their own homes. This can be traced to the fact that we have written our tax law in a way that encourages widespread ownership of homes." It will "be the equivalent of the Homestead Act," he continued. "Many people forget that the Republican Party was the party of the Homestead Act. On the day the Emancipation Proclamation went into effect, Abraham Lincoln signed the Homestead Act into law, which opened up the idea of ownership of property to millions of people."


What we are trying to do now is expand upon that, expand on the home mortgage deduction, expand on the Homestead Act, expand on the idea that people have a right to own their own home but they also should have an incentive in the tax system to own and control their own company. They will control their own economic destiny. This is the ultimate empowerment.


While Rohrabacherís bill is given little chance of passing in this session, its thirty-four cosponsors span the political spectrum, from very conservative Republicans, such as Ron Paul of Texas, to liberal Democrats like Marcy Kaptur and Dennis Kucinich of Ohio.

The ESOP Associationís Michael Keeling called the bill "revolutionary" and expects it to "spark a long-needed national debate on ownership policy."