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Senator Baldwin Introduces Legislation Encouraging Expansion of Employee Ownership

On September 11, Senator Tammy Baldwin (D-WI) introduced legislation designed to encourage companies to expand employee ownership through a combination of:  (1) favorable lending initiatives; (2) tax incentives; and (3) educational and technical outreach.  The legislation, entitled the “Worker Owned Wealth Act,” is co-sponsored by Senator Kirsten Gillibrand (D-NY).

Under the lending initiatives, the legislation would establish an “Employee Ownership Revolving Loan Fund” in each field office of the Department of the Treasury.  Each office would be authorized:  (1) to make low-interest loans to business owners seeking to establish employee ownership; and (2) to make loan guarantees to private lenders who make loans to ESOPs.

The tax initiatives focus on a partial income tax exclusion for interest income received by banks, insurance companies, lending corporations, or investment companies with respect to loans provided to a corporation or to an ESOP for the purpose of acquiring employer securities.  The exclusion can range from 10% to up to 50% of interest received (depending on the size of the lender) during a specified period of the loan’s term, up to a $20,000,000 annual cap, and the bill includes a variety of requirements designed to ensure that the loans meaningfully benefit the ESOP and its participants.
The legislation also modifies certain limitations on a public company’s tax deductions for excessive compensation paid to executives.  Specifically, the bill adds a requirement that a public company must maintain a qualified employee stock program in order deduct certain performance-based compensation outside of the compensation deduction limits.  

Finally, the legislation establishes the “Office of Employee Ownership and Worker Empowerment” within the National Economic Council, which would be charged with:  (1) providing free educational and technical assistance to small businesses that are attempting to establish employee ownership; (2) raising awareness of profit sharing (including ESOPs) to companies and employees; and (3) submitting a report to Congress regarding any barriers to employee ownership in companies.

The bill has been referred to the Committee on Finance.

About the Author

Andrew leverages a unique combination of legal and tax accounting skills to provide clients with actionable business-oriented solutions to legal questions. Andrew counsels clients on a wide variety of employee benefits issues, including employee stock ownership plans (ESOPs), health and welfare plans, qualified retirement plans, and nonqualified deferred compensation plans. Andrew's tax experience covers business income tax, sales and use tax, and employment tax compliance.

 Contact Andrew by email or phone (608) 252-9200.

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