Editor's note: As part of American Solutions' ongoing effort to seek ideas from American businesses about how to revitalize the economy, the following piece was submitted by Andrew Kulesza, who serves as Treasurer of Kramig Insulation in Ohio.
America needs tax reform to spur job creation and promote American business, and one reform specifically would boost employee confidence while also encouraging more growth and more investment.
Over thirty years of data shows that employee-owned companies through an employee stock ownership plan, or ESOP, structure outperform non-ESOP companies. A little more than a decade ago a popular corporate structure referred to as an "S-corporation" could not have employee ownership through an ESOP (under U.S. tax law, there is no federal corporate tax imposed at the corporate level and at the shareholder level on dividends, but the shareholders are liable for the corporate federal tax.)
But in 1998 an ESOP tax law made it advantageous for certain corporations to adopt the ESOP structure. Since S-corporations are privately held, and thus fit the style of high performing ESOP companies, they have more than met congressional expectations since 1998 of being prime examples of the power of employee ownership in a free market economy.
For example, Kramig Insulation has been in business since 1896 and is headquartered in Lockland, Ohio, with revenues now over $25 million. Were it not for ESOPs, Kramig would have either continued to be owned by two well-to-do businessmen or sold to a private equity group out of state. Favorable tax treatment of ESOP companies, however, has instead allowed our company to be 100% employee owned, of which almost 20% is owned by females and minorities.
Kramig employs an average of 300 employees a week, both union and non-union. No participant has ever had to invest one penny of their cash in the company. Moving to an ESOP has had the following outcomes:
Furthermore, by deferring the tax on the S-ESOP companies' taxable income until an employee owner leaves the company and cashes in the value of his or her stock, the S-ESOP model has the advantage of solving the often hard to manage cash demands placed on privately-held ESOP companies to repurchase stock with cash from departing employees.
Our government needs to continue to encourage expansion of ownership of productive assets by private sector employees, in a manner suitable to high performance of American companies in a highly competitive global economy. Preserving current S-ESOP laws, and considering reasonable changes in the law to expand ownership by employees matches the core values of our nation, a nation of economic opportunity and participation.
America needs tax reform to spur job creation and promote American business, and one reform specifically would boost employee confidence while also encouraging more growth and more investment.
Over thirty years of data shows that employee-owned companies through an employee stock ownership plan, or ESOP, structure outperform non-ESOP companies. A little more than a decade ago a popular corporate structure referred to as an "S-corporation" could not have employee ownership through an ESOP (under U.S. tax law, there is no federal corporate tax imposed at the corporate level and at the shareholder level on dividends, but the shareholders are liable for the corporate federal tax.)
But in 1998 an ESOP tax law made it advantageous for certain corporations to adopt the ESOP structure. Since S-corporations are privately held, and thus fit the style of high performing ESOP companies, they have more than met congressional expectations since 1998 of being prime examples of the power of employee ownership in a free market economy.
For example, Kramig Insulation has been in business since 1896 and is headquartered in Lockland, Ohio, with revenues now over $25 million. Were it not for ESOPs, Kramig would have either continued to be owned by two well-to-do businessmen or sold to a private equity group out of state. Favorable tax treatment of ESOP companies, however, has instead allowed our company to be 100% employee owned, of which almost 20% is owned by females and minorities.
Kramig employs an average of 300 employees a week, both union and non-union. No participant has ever had to invest one penny of their cash in the company. Moving to an ESOP has had the following outcomes:
- Meaningful retirement for "Main Street" employees.
- Higher levels of employee performance through an ownership culture.
- An opportunity for all employees to have ownership in a private business with no capital of their own put forth.
- Retention of employees during economic slowdowns.
- Investment in projects such as green technology and real estate management, which have led to new hiring.
Furthermore, by deferring the tax on the S-ESOP companies' taxable income until an employee owner leaves the company and cashes in the value of his or her stock, the S-ESOP model has the advantage of solving the often hard to manage cash demands placed on privately-held ESOP companies to repurchase stock with cash from departing employees.
Our government needs to continue to encourage expansion of ownership of productive assets by private sector employees, in a manner suitable to high performance of American companies in a highly competitive global economy. Preserving current S-ESOP laws, and considering reasonable changes in the law to expand ownership by employees matches the core values of our nation, a nation of economic opportunity and participation.
Let's add that employee-owned companies don't close their companies and send their jobs offshore.
You say "all employees to have ownership WITH NO CAPITAL OF THEIR OWN PUT FORTH"? So who provides the capital? The original owners do not just hand over the ownership of the business to the employees out of the goodness of their hearts?
Employee ownership is good in repelling Union lefties from muscling their way into your enterprise. If employee ownership means that they bought the company like what Harley Davidson did from AMF then it is a good thing. However, with the new card check or choice law we can rest assured that even with employee ownership, we will still have these rascals shadowing our businesses.
With the new payroll taxes and mandates setforth by the health care reform bill, small businesses will remain under 50 employees as a hedge against the IRS agents pressing this bills mandates through snooping.
How about that new so called jobs bill being pushed through congress. As if the government can actually create jobs. For every dollar the government takes in, it spits out 26 cents worth of service. In essence, this jobs bill is a negative jobs bill that takes money away from the existing businesses and wastes it through wasteful government then when there is a slight up turn in the economy, they say it was that jobs bill that did it.
Like how the present administration claims how their stimulus saved jobs where all we have noticed is historic unemployment in double digits. All of this double talk from the old snake oil sales folk in the whitehouse would be humorous if it wasn't so downright devastating.
So when the Obama horse and wagon come to town this 2010 election, just say no to their snake oil and other clever concoctions brewed to get your vote.
We need the Fair Tax.Abolish the IRS,get rid of the income tax.This will spur economic growth and lasting prosperity.