The False Promise of Worker Capitalism: Congress and the Leveraged Employee Stock Ownership Plan Note
Employee stock ownership plans (ESOPs) are a form of statutory pension program designed to invest employee retirement assets in the stock of the employer. A leveraged ESOP borrows money to finance the stock purchase. As a congressionally sanctioned “technique of corporate finance,” the leveraged ESOP program represents the leading legislative effort to date to transfer controlling equity blocks in American corporations from outside shareholders to workers. While the cost of the program’s tax subsidies has not been reliably calculated, the foregone revenues to the Treasury could well exceed several billion dollars annually.
And unlike the vast array of consumption-oriented transfer programs sponsored by the government, the leveraged ESOP program aims to shift ownership of the nation’s productive assets to workers.” The program’s impact extends from the small, closely-held corporation to the largest enterprises in the United States. At the political level, numerous groups view leveraged ESOPs as a key tool for social reform and national industrial policy. Many state governments have adopted similar employee ownership programs and subsidies as an integral part of local economic development initiatives.
This Note analyzes leveraged employee buyouts as a core application of the leveraged ESOP program. These buyouts highlight the contention of Congress that leveraged employee ownership can boost productivity, transfer wealth without expropriation or tax redistribution, and transform workers into capitalists.