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Reduce Economic Inequality with Worker Ownership

Ever-increasing economic inequality has convinced millions of Americans the U.S. economy is failing them. Congress can reverse this decline and rebuild the middle class by supporting worker ownership of companies. It’s a proven way to increase wages, build wealth, strengthen companies and save communities.

Ownership is key: Exponential wealth increases for the top percentage of Americans are due to their ownership of capital and capital income. Bill Gates, Warren Buffett, and the Koch brothers alone have as much wealth as the 128 million people in the bottom 40 percent, according to Having a Stake, a new report from centrist think tank The Third Way.

Acting now is vital, as income inequality will only worsen the longer we don’t address two large crises:

  • The business-transition crisis: Up to 20,000 businesses a year over the next decade will be sold or shut down as millions of their baby-boomer owners retire. Without buyers, these viable businesses will be forced to move, shrink, or close.
  • The retirement-savings crisis: Nine out of 10 American households save too little to finance retirement, and millions have no savings at all.  According to the General Accounting Office, among households age 55 and up, about 29 percent have neither retirement savings nor defined benefit plans.

Worker ownership can help. When employees buy a healthy business, they keep a viable company in the community and on the tax rolls – and earn higher wages and equity that boost household savings.

The American Sustainable Business Council (ASBC) is actively encouraging Congress to expand worker ownership. Through tax reform, Congress can create legal parity for worker-owned companies—starting with existing tax benefits and access to federal programs. Tax reform could:

  • Make coops, worker coops, and union coops eligible for ESOPs’ tax benefits;
  • Make worker-owned companies eligible for economic-development tax incentives;
  • Create an incentive for owners who sell their companies to their employees.

Congress needs to know that worker-owned firms are strong and stable. During the Great Recession, worker-owned firms typically had fewer layoffs and higher survival rates than similar firms. And, as Having a Stake reports, they grew faster at Recession’s end.

Congress also needs to remember that worker ownership is an American tradition. According to Citizen’s Share, Reducing Inequality in the 21st Century:

  • Almost half of U.S. full-time wage and salary workers have a share in their employer.
  • 20 percent of companies listed on the NYSE and NASDAQ have some form of employee stock ownership.
  • Cooperatives, part of U.S. agriculture for more than a century, number more than 3,000 today. According to the Univ. of CA Cooperative Extension Program, these coops have a combined membership of 2.8 million, a net income of nearly $1.2 billion, and net business volume of more than $96 billion.

Having a Stake points to the U.S. government’s long tradition of distributing capital to reduce inequality.  When a majority of people’s workplace was the farm, the Founders made federal lands available at low prices for average citizens to acquire a homestead. President Jefferson made almost a million square miles available through the Louisiana Purchase. President Lincoln helped to make 270 million acres—10 percent of the country’s landmass—available through the Homestead Act of 1862.

The 2016 Republican Platform endorsed the creation of Employee Stock Ownership Plans, saying the future relationships of work will be built on “employee empowerment and workplace flexibility. We therefore endorse employee stock ownership plans that enable workers to become capitalists, expand the realm of private property, and energize a free enterprise economy.”

Federal government support of worker ownership is not new, radical or partisan. It’s a sensible American tradition whose time has clearly come again, and it deserves the full support of Congress.

John O’Neill is the Tax Policy Analyst for the American Sustainable Business Council.