Rep. Rangel Introduces First Of Many Post-Enron Bills

by Mike Godfrey, Tax-News.com, New York

22 January 2002

Representative Charles Rangel of New York, the top Democrat on the U.S. House and Ways and Means Committee, is pushing legislation to impose a tax of at least 20% on sales of company stock by executives if workers are restricted from trading the stocks in an employer-sponsored retirement savings plan.

Mr Rangel's proposed legislation would ensure that employees of a company have the same flexibility in selling equities in that company as executives and large stockholders. Specifically, the legislation would impose substantial tax penalties on the sale of a company’s stocks by executives and other “insiders” if the company restricts its employees from trading its stocks in an employer-sponsored section 401(k) plan.

Says Mr Rangel: “With Enron, executives and corporate board members could unload the stock when they sensed a problem, but the workers were locked in. That’s not fair - the money in the 401(k) plans belonged to the worker, not the company. This legislation aims at preventing future Enron debacles by making sure that rank-and-file workers have the same flexibility to buy and sell their company’s assets as those at the top.”

"Enron employees lost billions on their investments in Enron stock because Enron placed restrictions on sales of its stock held by employees in 401(k) plans. During the critical period within which Enron collapsed, it prohibited all sales of stock in its 401(k) plans while, reportedly, its executives sold over $1 billion in Enron stock."

The Rangel legislation would extend the 1980s 'golden parachute' excise tax to sales of corporate stock by insiders in circumstances where the rank and file employees of the company cannot sell that stock if it is held in the company’s 401(k) plan. The provision would be in effect for six months pending enactment of permanent protections for workers.

“If the Republican leaders had not gone out of their way to protect companies like Enron, this disaster could have been prevented. Now, Congress should immediately repeal the tax benefits that made Enron’s misleading financial structure possible. My bill would do just that,” said Rep. Rangel.

Mr Rangel's proposal hits too squarely at the US's entrepreneur-friendly legislative regime to have much chance in the Republican-dominated House; but it is no doubt only the first of many Enron-related bills that will attempt to level the playing field in favour of less senior employees.

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