Tax Reform and ESOPs

The tax reform framework issued by the Trump Administration, not surprisingly, does not say anything about ESOPs. It leaves to Congress the task of figuring out what special corporate tax benefits might be eliminated to help pay for the tax cuts the plan creates, but says that it eliminates a variety of business tax credits (it uses that word, not deductions) without specifying which ones.

The proposal does state that it "retains tax benefits that encourage work, higher education, and retirement" and encourages Congress to find ways to simplify the retirement system. One idea that Trump Administration officials have suggested in the past is to change the current deductibility of contributions into retirement plans and replace them with an emphasis on Roth-type plans, which are not taxed on withdrawal. That would generate tax revenue for the government now, but cost more in the future. It is not clear whether corporate contribution deductibility would change, though, and changes to retirement plan benefits as popular as 401(k) plans are notoriously difficult.