Similar to our economy, American politics weaves its way through observable patterns on both micro and macro levels. Because of these patterns, astute observers can, to a certain degree, predict a general trajectory for the future of governance. On these observations, we can build agendas and make plans for their success. One of the largest projects of the year for your Association is just that – building A New Policy Agenda and making our plans to see it through.
So, why now?
Collectively, ESOPs have become a fully mature business sector in the American economy, and a significant contributor to the economic well-being of thousands of communities and millions of families. We need to internalize the fact that nearly 11 million U.S. households are ESOP beneficiaries. That is a larger number of Americans than are employed by the entire U.S. auto industry. ESOPs are also growing – both in number and in size – creating an even bigger footprint and foot!
ESOPs are arguably at their highest level of broad, bi-partisan support in their nearly 70-year existence. In fact, I would be very hard pressed to name a single individual in the Congress who has a negative view of the value of employee ownership and the contributions ESOPs make to America. It is no longer plausible to suggest that Congress would seek to make detrimental changes to ESOPs. It is no longer plausible to suggest ESOPs should be satisfied with a “best offense is a good defense” approach to advocacy.
In many ways, ESOPs have been suffering a death by a thousand paper cuts while the majority of the community’s advocacy efforts have been focused on passing a 1042 tax benefit for S-corporations when forming an ESOP. To be sure, it would be a hugely beneficial development for new ESOP formation if it were to pass. But, according to the budget scorekeepers, it would cost the Treasury more than $10 billion. This price tag is a major reason the bill has never even received a hearing in either chamber of the Congress. Sadly, while so much energy and resources have been spent on this proposal over the last decade or more, the other challenges to ESOPs have been accumulating.
It has come time to properly surface all of the many small and large ESOP related issues we face as a community and get to work on forming a comprehensive new agenda to meet the entire ESOP Community’s needs well into the future.
The big wheels in American politics are turning in big ways right now. Part of it is driven by generational shifts in the workforce and voting population. Another part of it is driven by endemic economic insecurity that has been exacerbated by the economic and workplace disruption of COVID. Some of the turn is driven by structural cycles like the once-a-decade redrawing of districts and the resulting wave of Congressional retirements and departures taking place.
While COVID and its lingering effects dominate many news stories, many wise old hands in Washington are comparing the 2022 midterm elections to the 1982 midterms – when President Ronald Reagan was facing down similar conditions as we face today. Having defeated a sitting President in the previous election, Reagan was faced with unprecedented inflation, widespread economic insecurity, a growing threat from an opportunistic Soviet Union, and a Congressional midterm where his party was likely to suffer significant losses.
But following the 1982 elections came Reagan’s “Morning in America” where a dramatic shift in America’s democracy and political alignment began. At that time, Baby Boomers became the dominant voting generation, a position held until they were dethroned by Millennials in the 2020 election. Reagan was facing an emboldened opposition in the Congress. And Americans, who had grown intolerant of more excuse-making, demanded more production and less talk out of their national leaders.
For ESOPs, one of our greatest challenges, of course, has been our primary regulatory agency – the Employee Benefit Security Administration (EBSA) at the Department of Labor. During the Trump administration, Congressional Republicans held their fire against the administration, not wanting to appear critical. Today, Democrats in Congress are hesitant to be critical of the Biden administration for similar reasons. But if power becomes split, as is likely the case after the mid-terms, there is an opportunity for a Republican majority in the Congress to tell a Democratic Department of Labor to provide the regulatory clarity that ESOPs have long sought and is much needed.
Over the course of 2022, The ESOP Association is undertaking a comprehensive approach to develop a new agenda designed to make it easier for existing ESOPs to operate, make it easier for ESOPs to grow, and make it easier for ESOPs to be formed in the first place. This type of comprehensive legislative and regulatory approach to public policy is long overdue. I invite you to all join in its development. Share your stories. Share the problems you have encountered. Provide the data, resources, and engagement it will take to make needed reforms happen.
The ESOP Association is YOUR Association. It was formed by companies and professionals just like our members today to advance our collective interests. I invite you to reconnect with that history and participate vigorously as we all work together for a brighter future for ESOPs and employee owners.