Washington, DC (July 26, 2012) – A study released today by Alex Brill, former advisor to the Simpson-Bowles bipartisan deficit reduction commission and a fellow at the American Enterprise Institute, finds that private employee stock ownership plans (ESOPs) organized as S corporations increased employment over the last decade more quickly than the overall private sector.
Among surveyed “S-ESOP” companies, the Brill study reported, jobs grew by 60 percent over the past decade, while jobs in the private economy as a whole remained relatively flat.
“The unique strengths of employee ownership drove company gains and jobs in the past decade, while helping insulate S-ESOP businesses from the adverse effects of the recent recession,” Brill wrote in the new report.
ESOPs are tax-exempt retirement plans that consist of company stock held on behalf of the company’s employees. They are company-funded retirement plans that do not require any contribution from workers. Congress first changed U.S. tax rules to allow S corporation businesses to be ESOP-owned in 1998; today, there are thousands of S-ESOP companies in America employing millions of Americans – who are owners of their business – in every U.S. state.
KEY FINDINGS: In the study, Brill assessed the ten-year performance of S-ESOP companies through a survey of 56 S-ESOP businesses and through extensive analysis of Labor Department data from 2002-2009. He found that:
- S-ESOP companies showed substantially more employment growth in the pre-2008 recession period than private businesses;
- S-ESOP companies regained momentum faster than other private firms after the recession; and
- S-ESOP companies in the manufacturing sector particularly benefited from the S-ESOP business structure, which buffered manufacturers through especially challenging recent economic times.
Brill’s study makes clear that these unusually positive business outcomes may be linked to the beneficial effects of employee ownership on private businesses, where workers are substantially more invested in the success of their workplaces because they know it will affect their own economic well-being. An earlier University of Pennsylvania study found that the success of S-ESOP companies generates roughly $14 billion in retirement savings for the workers of those businesses that would not have existed in the absence of the S-ESOP business ownership tax structure.
The Brill report comes out in the run-up to tax reform deliberations on Capitol Hill, and as policymakers sort through which of the special arrangements should remain in the Tax Code. The Simpson-Bowles Commission recommended that policymakers eliminate many so-called tax expenditures in order to address the country’s fiscal imbalance. But Brill clarifies in his new report that “many tax expenditures are appropriate and effective tools for promoting economic growth or addressing negative externalities.” He points to the S-ESOP as one such tool, asserting, “Policymakers should recognize the evidence in support of S-ESOPs and their positive economic contribution.”
The Employee-Owned S Corporations of America (ESCA) is the Washington, DC voice for employee-owned S corporations. ESCA’s exclusive mission is to preserve and protect S corporation ESOPs and the benefits they provide to the employees who own them.