Republicans Attack ESOPs Again; President Reiterates Support

House Republicans have led an effort to repeal section 133 of the Internal Revenue Code, which allows lenders to exclude 50% of the interest income they receive on loans to certain ESOPs owning over 50% of a company's shares.

Republicans originally included the repeal in the Budget Bill, which is now probably fatally languishing between the Congress and the President. Now they have attached it to a small business tax relief bill that passed the House May 22. The section 133 repeal would help pay for the new tax benefits.

Part of that small business bill makes changes in Subchapter S law. Initially, those changes would have included allowing ESOPs to own stock in Sub S companies, but the Republicans dropped that provision, one of only three of 23 provisions in the original bill they deleted.

Meanwhile, President Clinton has directed the Labor Department to look at ways to encourage employee ownership and participation as part of his "corporate responsibility" initiative. He also reiterated his opposition to dropping section 133.

Prospects for the Republican proposal are uncertain. The tax bill would probably pass the Senate, but is tied up in complex politics and might not ever reach the President, who might veto it if it does.