A recent op-ed written by Alex Brill, Tough Politics Are the Barriers To True Tax Simplification, highlights the economic value of S Corporation employee stock ownership plans (S ESOPs) as an example of the need for federal policymakers to carefully consider the value of existing tax code provisions before making blanket decisions to eliminate good policies in the name of simplification.
The op-ed, published in Forbes, points out that “the benefits of promoting employee ownership are broad based and well established,” and promotes economic growth in a variety of ways. Notably, the S ESOP structure is proven to “drive stronger worker commitment, higher wages, job stability, and higher retirement plan contributions.”
Brill, who was also a tax advisor to the Simpson- Bowles deficit reduction commission, explains that his recent study, An Analysis of the Benefits ESOPs Provide to the U.S. Economy and Workforce, “concludes that employment within a set of S ESOPs operating continuously over the last decade rose 20 percent, while the overall labor market has been roughly flat.”
S ESOPs accomplish exactly what Congress intended them to when they were incorporated into the tax system back in the 1990s. They provide substantial retirement savings at no cost to the employee, with account balances 3-5 times higher than the average 401 (k), and overall, allow for $14 billion in new savings each year for workers. In addition, a study from the University of Pennsylvania points out that S Corporation ESOPs higher productivity, profitability, job stability and job growth generate a collective $19 billion in economic value that otherwise would not exist.
S ESOPs truly are the American dream at work, and Brill highlights the importance of paying attention to the details, particularly S ESOPS, when looking to simplify the tax system.
“The bottom line is clear: broadening the tax base to remove the social and industrial policies that have eroded the tax system is a good step toward a simpler tax system that promotes more growth. But the devil is in the details. Without carefully and objectively evaluating the pros and cons of each existing tax preference, bad economic (and political) outcomes may ensue if the good is tossed out with the bad. But only if the next president makes tax reform a top priority will anything meaningful come to pass.”
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