share this article!

Carta’s Director of Public Policy

It is now, more than ever, a good time to reflect on the condition of inequality in this country, to ponder the ramifications of wealth imbalance, and to consider how the country can do better. Those that had less in the previous year suffered more. Those who had more accumulated more.
People in lower-income neighborhoods lost more jobs and were more likely to be evicted, and those who lost jobs or income during the epidemic were more likely to use their retirement savings to pay bills. Homeowners and investors profited from real estate appreciation and made disproportionate profits in a booming stock market, respectively, while those in higher income levels were more likely to have inflated their savings accounts.
Lawmakers have been scrambling to provide immediate assistance to individuals in need. Legislators approved stimulus payments, voted on child care stipends, and reintroduced the minimum wage debate. These are critical measures. However, they can only do so much. Too many folks are simply trying to stay afloat.
Looking ahead, they must consider ideas that will assist more Americans in accumulating meaningful, long-term wealth. One of these solutions is to create an ownership economy. I’ve experienced firsthand how transformative ownership can be as the head of public policy at Carta, an equity management firm.
IN AN OWNERSHIP ECONOMY, MORE PEOPLE HAVE AN INTEREST IN THE COMPANIES FOR WHICH THEY WORK. This means that, in addition to their base wage, more workers are offered equity as part of their job offers.
More people have access to the benefits of equity appreciation in this type of economy. They have the opportunity to share in the earnings that they contributed to generate, which they can then reinvest in themselves, their families, and their communities.
Employee ownership isn’t a new concept. It is, however, uncommon. Too many people in the United States today do not hold stock in the companies for which they work. They are paid a yearly or hourly wage, with the possibility of a financial bonus, but they have no ownership in the companies they assist start.
In reality, according to the most recent decade of available data, from 2002 to 2014, the percentage of all private sector workers obtaining stock options decreased.
Employees at public businesses with ownership models, on the other hand, earn 7% more on average than those at companies that do not offer broad-based ownership. Employers become more competitive as a result of their employees’ increased engagement and decreased likelihood of leaving. Higher productivity, better innovation, and more equitably distributed income benefit the broader economy as well.
Importantly, a livelihood based only on earnings is fleeting. When the work ceases, the revenue stops as well. A livelihood built on equity, on the other hand, is more long-lasting. To establish a more sustainable model, the country’s policies must be updated.
To begin, legislators should think about how they can encourage businesses to generate more employee-owners. Lawmakers should create a tax structure that encourages businesses to give stock to the majority of their employees, expanding ownership beyond the executive suite.
By aligning taxes with the timing of selling shares, the tax code should help employee-owners realize the value of their hard-earned ownership positions. Some equity owners are subject to taxation on shares they have not yet sold. This may be OK for long-tenured CEOs with the financial means to pay, but for many others starting out in their careers or at lower levels, it means they owe taxes and don’t have the funds to pay them.
Furthermore, the tax legislation should allow employees to purchase the stock they earned even after they leave a company for a longer period of time. Employees currently have a limited window to purchase shares, known as the “post-termination exercise window.” It’s also not cheap. They must pay for the acquisition of vested options as well as the taxation of their earnings. Employees who do not have cash on hand or employment lined up wind up squandering their hard-earned money. They are entitled to better.
Finally, regulators should continue to improve private market liquidity by allowing employee-owners in private enterprises to sell their shares and monetize their worth.
As the country recovers from the pandemic, programs to assist those who have been harmed are urgently needed. It also requires measures to assist individuals in thriving in the future.
With the right regulations and private sector infrastructure in place, creating an ownership economy can be transformative. Equity is a type of remuneration that has the ability to improve people’s lives. It aids in the repayment of debt, the purchase of property, and the accumulation of wealth.
The pandemic shone a bright light on the country’s disparities. Those who had assets fared well, while those who had not performed poorly. Moving forward, the country can and should use that same light to create a more inclusive ownership economy.
Forbes Finance Council is an invitation-only group of successful accounting, financial planning, and wealth management executives. Do I meet the requirements?/nRead More

share this article!