It’s a big deal in D.C. when the President, no matter whether Democrat or Republican, publishes his budget recommendations for the upcoming fiscal year, which begins on October 1.  [In other words, the budget proposal released on February 1 is for the Federal Fiscal Year 2011, which begins on October 1, 2010.]  Everyone reads it over carefully, particularly proposals to alter tax laws.

 

The ESOP Association has been consistent over the past two years noting that the ballooning deficit would lead to the same scenario we saw in the 80s. Beginning in 1982, Congress passed and Presidents Reagan, Bush, and then Clinton, signed into law new tax increases.  The overwhelming majority of these tax increases were called “loophole closers.”  And we cannot forget that for many cynics of ESOPs who hold important positions on Congressional staffs, and in the Administration, all ESOP tax incentives are “loopholes” at worse, and wasteful tax expenditures are best.

 

So while we can be pleased that this recently released budget by President Obama does not propose any change in laws impacting ESOPs, it should be noted that it calls for tax increases equaling $1.1 trillion over 10 years.  Some of the proposals are very controversial, and they will be rejected by the House Ways and Means Committee and the Senate Finance Committee.  For each tax increase proposal rejected, or if you prefer revenue raiser or loophole closer, the Committees will look at other ways to increase taxes by going after tax preferences, loopholes, etc.  In the 80s, that act of looking for something else often led a tax committee member to be persuaded by professional staff to put a negative ESOP tax proposal forward to “pay for” rejecting another tax revenue raising proposal.

 

And of course, next year there will be an additional set of revenue raisers proposed.

 

Very good, very pleasing that ESOPs were not targeted in the 2011 budget proposal; but the atmosphere is fraught with an increase taxes wind, and every advocate of ESOPs has to be on her and his toes in making the case, on the local level, that employee ownership through ESOPs is good for the local community, the employees, the company, and overall the nation.

 

We won more than we lost in the 80s, and the same can be true in the second decade of the 21^st Century.