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The Employee Ownership Update

Corey Rosen

October 27, 1999

(Corey Rosen)

Ramstad-Breaux Bill Would Address ESOP S Corporation Issues

Congressman James Ramstad (R-MN) and Senator Donald Breaux (D-AL) have introduced legislation (HR 3082 and S 1732) designed to curb abuses of the S corporation ESOP law. The proposal builds on a similar bill that was in the tax bill President Clinton vetoed. It defines as a disqualified person anyone who has more than 10% of the deemed fully allocated shares of the company, or whose family has more than 20%. If this group owns more than 50% of the company, including through synthetic equity, then no one in the group can get an allocation of shares in the ESOP that year. Violations trigger a 50% corporate excise tax and individual income tax. If these anti-allocation rules are triggered, there would also be a 50% excise tax on the company on any "synthetic" equity that this group holds that year.

The bill has been passed by the Senate as part of a bill extending certain provisions of the tax code; the House has not acted on it. It appears likely that if the bill is not included in a tax bill this year, it will be included in some future bill next year.

39% of Inc. 500 Give Broad Options

A new survey by Inc. magazine (10/99) shows that 39% of the Inc. 500, the fastest growing privately held companies in the U.S., give stock options to all full-time employees, up from 26% last year. The median employment size of the companies is 60, and median sales were $10.2 million.

Wealth Gap Grows

New data show that the gap in income and wealth between the rich and poor has continued to increase. According to New York University economist Edward Wolff, in 1977, 43.2% of the households owned stock, but 90% of the shares were owned by the top 10% of the shareholders. That 10% held 73.2% of the country's net worth in 1997, up from 68.2% in 1983. Meanwhile, according to the Congressional Budget Office, the top 1% of the population has as many after-tax dollars to spend as the bottom 100 million people. The share of national income going to the bottom 20% of the population has dropped from 5.7% in 1997 to 4.2% in 1999, while the share for the highest fifth grew from 44.2% to 50.4%. The middle quintiles all dropped in their share from 1997 as well.

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