Deborah Groban Olson *
Attorney at Law

 * admitted to practice MI, IL, WI, AR

1021 Nottingham Road
Grosse Pointe Park, Michigan 48230
Telephone (313) 331 7821
Fax (313) 331 2567
E-Mail dgo@esoplaw.com
Website www.esoplaw.com

 

“Fair Exchange”

Protecting citizens, taxpayers and pensioners facing corporate bailouts and corporate accountability scandals

Summaries of 4 timely broad ownership proposals

 

From:            Attorney Deborah Groban Olson (www.esoplaw.com)
Date:            June 23, 2003

Fair Exchange Investment and Taxpayer Protection Act (FEITPA) of 2001

Following the terrorist acts on September 11, 2001, many private businesses (most notably the airlines) sought investment from the US government in grant or loan form to handle the damages and increased risks.  Many own or operate assets both within and outside and the US, while the taxpayers making the loans and loan guarantees are US citizens who may also be harmed by related loss of employment.  This FEITPA proposal tracks (but expands upon) the language of the Air Transportation Safety and System Stabilization Act of 2001, P.L.107-42 Sec.102 (d) (“ATSSSA 2001” or “Airline Bailout Act”). FEITPA would make the one-time policy on government investment in private business a general policy for all such investments. FEITPA proposes the US Congress create a Federal Equity Exchange Board (FEEB) and require that in exchange for government grants, loans and loan guarantees, the FEEB shall obtain contracts under which the government, the business’ employees and all current US taxpayers would participate in the gain of the participating business through common or preferred stock and instruments such as warrants and stock options (FEESOP).  The FEEB's purpose would be to utilize the financing capacity of the federal government to accomplish and balance three goals: 1) to broadly distribute "meaningful ownership" among U.S. citizens in the same way that the Homestead Acts of the 1860's made many citizens landowners; 2) to provide necessary financing to stabilize US businesses and the US economy; and 3) create a second stream of income as jobs become less permanent. This framework provides citizens appropriate returns on their investment when the government acts quickly to respond to an emergency. It also uses the economic strength of the US government to counterbalance the trend whereby hegemony of global corporations is increasing as that of nation-states is decreasing.  The Chrysler Loan Guarantee Act of 1979 is a precedent.

Fair Exchange Proposal - Equity Quid Pro Quo Proposed Legislative Language

This is a more generic version of the above FEITPA proposal. The “Fair Exchange” Proposal (also called “stock or equity quid pro quo”) provides an equity return to citizens for specific government benefits provided to businesses. The equity would be used to promote local economic development and local control. It is not a proposal for government ownership of businesses. Rather, it calls for ownership of company stock by a “commonweal agency” that may be organized in a number of ways including:  a community land trust, a community economic development fund, or individual accounts for all the local citizens. It may be a non-profit or for-profit entity. The citizen shareholders elect some of its leaders and some are hired by the elected representatives based on business expertise and ability to discern and serve the needs of the community. The intent is to (1) deter government units from competing with each other for corporate location by means that undermine their local economies; (2) build a diverse stock portfolio for every citizen over a generation; (3) create a source of non-wage income and a vote in corporate decision from a diverse citizenry; and (4) create means for the new corporate citizenry to intelligently and collectively exercise their concerns by electing some members of the boards of directors of the funds that hold their stock.  Specific language includes:

"In exchange for government benefits granted to a business for providing jobs, or government grant of licenses or permits enabling extraction of natural resources or use of collective resources, such as air and water for business purposes, the business shall provide a quid pro quo at fair market value to the commonweal."

"Commonweal" means private or public entities, and other entities provided they met specific tests of bona fide interest in protecting the long-term economic, social, ecological and/or cultural interests of the local citizens.  They should provide the community receiving the benefit with individual accounts to provide citizens with: a) wealth creation for their families; b) the ability to withdraw and use the funds; and c) the ability to vote for the leadership of the trust, and to take action to formulate the policies of the trust.

"Government benefits" means any tax deduction, abatement, grant, government subsidized or guaranteed loan, license (e.g. banking and broadcasting), lease, concession, or contract, preparing and/or providing parcels of land, government contracts, and favorable utility rates, use of non-renewal resources, etc.

"Quid pro quo" means corporate common stock with the greatest voting and dividend rights or preferred stock convertible into such common stock or its equivalent in cash.

Proposed Worker Bill of Rights in ESOPs - Sliding Scale Tax Incentives

Makes ESOP tax benefits for the corporation and selling shareholder available on a sliding scale based on the amount of voting stock meeting the requirements described below, or contributed to the plan pursuant to a collective bargaining agreement. For example, if taxpayers sell or contribute 10% of their stock to an ESOP, they would receive 20% of the ESOP benefits for which they were otherwise eligible. (The term "taxpayers" is used to refer to any selling shareholders, estates, or corporate plan sponsors.) If taxpayers sell or contribute 20%, they would get 40% of the benefits, etc. The benefits would increase so that once taxpayers sell or contribute 50% or more, they would be eligible for 100% of the ESOP benefits.

Reinstate the ESOP lender deduction (IRC Section 133), contingent upon requirements, (any or all of which may be waived if the ESOP is created through collective bargaining) that either: (a) more than 50% of the company’s voting stock be allocated to ESOP participants; or (b) where the ESOP owns more than 30% but less than 50% of company stock, the plan provides that the ESOP participants, through the ESOP committee, direct the trustee on how to vote unallocated shares. (Changes ERISA to permit employee owners to direct trustees to vote allocated and unallocated shares.)  Makes ESOP appraisals available to participants with appropriate confidentiality safeguards.

If Congress is going to encourage employee ownership, employees should get enough control over investment, disinvestment, employment, and other significant corporate policies to make employee ownership a meaningful method of anchoring business in local communities.

Summary of “Employee Ownership Act of 2001” – a non-pension form of tax advantaged majority employee owned and controlled company

(Introduced 6/28/2001 and reintroduced in 2003 as H.R. 913 by Hon. Dana Rohrabacher.)

Declares the policy of the United States that, by the year 2010, 30 percent of all U.S. corporations shall be owned and controlled by their employees. Amends the Internal Revenue Code to provide for tax-exempt employee-owned and employee-controlled corporation (EOECC) trusts whose primary assets consist of the employer securities of an EOECC. Declares that: (1) there shall be no tax on the corporate income of an EOECC; and (2) the gross income of an employee owner shall not include any proceeds from the qualified sale of EOECC securities. Exempts from inclusion in gross income of property transferred in connection with performance of services any transfer (in lieu of compensation) of EOECC securities during the three years following a corporation's election to become an EOECC. Mandates non-recognition of gain in the case of the sale or transfer of EOECC securities to an EOECC trust. Establishes a credit against the estate tax for the amount of EOECC securities considered to have been acquired from or to have passed from a decedent to an EOECC trust. Directs the Comptroller General to study and report to Congress on Federal regulations and policies affecting EOECCs. Directs the President to establish a Presidential Commission on Employee Ownership to study and report on all issues that affect ownership of businesses in the United States, with a primary focus on the issues that affect employee ownership of such businesses.

For more on these concepts and related proposals check out the following links.

http://capitalownership.org/PapersMay2001/Homestead.htm

http://cog.kent.edu

http://www.kent.edu/oeoc/

http://thomas.loc.gov/cgi-bin/bdquery/D?d107:1:./temp/~bdLsM9:@@@L&summ2=m&|/bss/d107query.html

For more information on Deborah Olson see http://www.esoplaw.com

For more general information about employee ownership see: www.nceo.org