Factsheets

Clinton’s Plan for a Profit Sharing Tax Credit

Hillary Clinton believes the central economic challenge in America today is achieving stronger and steadier income growth. While corporate profits are near record highs, everyday Americans’ paychecks have barely budged in real terms. Clinton’s vision for the country’s economic future prioritizes a rise in incomes for hard-working Americans so they can afford a middle-class life.

Today in New Hampshire, Clinton outlined one idea to address this key challenge: encouraging companies to share their profits with American workers. She outlined a key proposal to give workers the chance to share in the profits they help produce.

A Win-Win: Profit Sharing Is Good for Workers and Good for Business

Under profit-sharing arrangements, companies agree to distribute to workers a specified share of business profits. There is strong evidence that profit sharing is a win-win for both workers and business:

  • Profit sharing gives workers a stake in the company. Under profit-sharing arrangements, when a company does well, the workers share in the gains they helped produce. So when corporations see the type of near-record profits they have recently, not only would the executives and shareholders do well – the workers would too.
  • Profit sharing increases worker pay. Evidence shows that profit-sharing arrangements are linked with higher pay. If a worker is enrolled in a good profit-sharing plan, that could mean a raise of thousands of dollars.1
    • For example, Professors Richard Freeman, Joseph Blasi, and Douglas Kruse of Harvard and Rutgers find "strong evidence" that profit sharing has "meaningful impacts on workers' wealth" because "[w]orkers with profit sharing or employee stock ownership are higher paid and have more benefits than other workers."2
  • Profit sharing makes businesses more productive and innovative. Studies find that profit-sharing plans on the whole result in increased business productivity and innovation.3 This makes sense: when employees share in profits, they have a stronger stake in the company's success.
  • Profit sharing improves the workplace. Profit sharing has also been associated with other improvements in the workplace – including better employee training, lower employee turnover, and increased employee participation in decision-making.4 In fact, evidence suggests that profit-sharing leads workers to be more satisfied with their jobs overall.

Today, Clinton Outlined Her "Rising Incomes, Sharing Profits" Tax Credit

Expanding profit-sharing – by offering incentives to help businesses cover the initial costs of setting up a plan and overcome the inertia of a “business as usual” mentality – would be a win-win for America’s workers and businesses. Clinton would encourage companies to share profits by offering them a tax credit for sharing profits with employees.

Specifically, Clinton’s “Rising Incomes, Sharing Profits” tax credit would:

    1. Award a two-year tax credit to companies that share profits with their employees. Under Clinton's plan, companies that share profits with their employees would receive a two-year tax credit equal to 15 percent of the profits they share – with a higher credit for small businesses. Shared profits eligible for the credit would be capped at 10 percent on top of employees' current wages. This would help companies overcome any initial costs of setting up a profit sharing plan. After two years, companies that have established profit sharing plans and enjoyed the benefits of them would no longer need the credit to sustain the plans.
    2. Target the workers and businesses that need profit sharing the most. The tax credit would phase out for higher-income workers, and it would only be available to firms that share profits widely among employees. Moreover, the benefit for any single company in a given year would be capped to prevent an excessive credit for very large corporations.
    3. Work with business, labor and other stakeholders to tailor the specific dimensions of the credit. Clinton believes broad engagement should help shape the precise elements of the credit. That's why, as president, she would direct her Treasury Secretary to convene small businesses and corporate leaders, labor leaders and other stakeholders to determine, among other things, the characteristics of qualifying profit-sharing arrangements and to develop protections against abuses – such as stopping companies from limiting or gaming wages and benefits to get the tax credit.
    4. Be fiscally responsible. The overall cost of the tax credit is expected to be roughly 20 billion over the ten-year budget window and will be fully paid for through the closure of tax loopholes that she will identify as part of the comprehensive agenda that Clinton will introduce in the weeks and months ahead. This investment will create a significant boost to the economy by putting more money in the pockets of millions of working Americans.

Clinton’s “Rising Incomes, Sharing Profits” Tax Credit represents exactly the kind of common-sense solutions that she will offer as President. And Clinton will continue to consult with private sector leaders, labor leaders, experts, and other stakeholders, and propose additional ideas on profit-sharing over the course of the campaign.

Leading Economic Voices Praise Clinton's Focus on Profit Sharing

Alan Blinder, former Federal Reserve Vice-Chairman and Princeton University economist:

“Hillary Clinton gets it. The central economic challenge of our time is raising incomes for American families. Profit sharing is one new idea to help steer our economy in that direction, and Hillary’s proposal would lead to more dollars in the pockets of workers across the country. When companies share profits, not only do workers benefit but the companies themselves see higher productivity and make a stronger contribution to our economy. It’s a win-win, and I’m glad Hillary is making this issue a priority.”

Laura D. Tyson, Director of the Institute for Business & Social Impact at the Haas School of Business, University of California Berkeley:

“Research over several decades confirms that profit-sharing is an innovative practice that benefits both workers and the businesses that employ them. Profit-sharing is associated with stronger worker engagement and trust, and lower turnover rates. The results are higher productivity, greater worker satisfaction and higher pay. Profit-sharing is both pro-business and pro-worker.”

Profit-sharing is only one piece of Clinton’s economic agenda. She will fight for strong growth by making the necessary investments in infrastructure, innovation, and education, and by breaking down barriers in the workforce – especially for women. She will fight for fair growth by raising the minimum wage, fighting wage theft, and supporting collective bargaining. And she will fight for long-term growth by imposing tough rules on Wall Street and encouraging American businesses to invest in the future.

In short, Hillary Clinton will fight every day of her presidency to achieve strong and steady income growth for American families—because raising incomes for hardworking Americans is the central economic challenge of our time.

1 For discussions on the relationship between profit-sharing and higher wages, see, for example, Blasi, Joseph R., Richard B. Freeman, and Douglas L. Kruse, The Citizen’s Share: Putting Ownership Back into Democracy (New Haven: Yale University Press, 2013) (chapter 5); and Kruse, Douglas L., Richard B. Freeman, and Joseph R. Blasi, “Do Workers Gain by Sharing? Employee Outcomes Under Employee Ownership, Profit Sharing, and Broad-Based Stock Options,” NBER Chapters (2010): 257-289. Michael Handel and Maury Gittleman found that profit-sharing programs are associated with 9 percent higher wages, which would translate into an additional $4,500 in pay for a worker making $50,000. Handel, Michael J., and Maury Gittleman, “Is There a Wage Payoff to Innovative Work Practices?” Industrial Relations: A Journal of Economy and Society 43, no. 1 (2004): 67-97. Other studies also link profit-sharing to higher wages and higher wage growth. Long, Richard J., and Tony Fang, “Do Employees Profit from Profit Sharing? Evidence from Canadian Panel Data,” Industrial & Labor Relations Review 65, no. 4 (2012): 899-927; Kim, Seongsu, “Does Profit Sharing Increase Firms’ Profits?” Journal of Labor Research 19, no. 2 (1998): 351-370; Kraft, Kornelius, and Marija Ugarkovic, “Profit-Sharing: Supplement or Substitute?” Dortmund University, Germany (2005); Azfar, Omar, and Stephan Danninger. “Profit-Sharing, Employment Stability, and Wage Growth,” Industrial & Labor Relations Review 54, no. 3 (2001): 619-630. 2 Blasi, Joseph R., Richard B. Freeman, and Douglas L. Kruse, The Citizen’s Share: Putting Ownership Back into Democracy (Yale University Press, 2013). 3 Kraft and Ugarkovic call the empirical evidence on the relationship between profit-sharing and productivity “remarkably clear as most studies come to the conclusion that profit sharing is associated with higher productivity.” Kraft, Kornelius, and Marija Ugarkovic, “Profit-Sharing: Supplement or Substitute?” Dortmund University, Germany (2005). See also Kim, Seongsu, “Does Profit Sharing Increase Firms’ Profits?” Journal of Labor Research 19, no. 2 (1998): 351-370; Doucouliagos, Chris, “Worker Participation and Productivity in Labor-Managed and Participatory Capitalist Firms: A Meta-Analysis,” Industrial & Labor Relations Review 49, no. 1 (1995): 58-77; Kris Aerts, Kornelius Kraft, and Julia Lang, “Profit Sharing and Innovation,” Industrial and Corporate Change (2015): dtv009. <4 Kruse, Douglas L., Richard B. Freeman, and Joseph R. Blasi, “Do Workers Gain by Sharing? Employee Outcomes Under Employee Ownership, Profit Sharing, and Broad-Based Stock Options,” NBER Chapters (2010): 257-289; Kruse, Douglas L., Joseph R. Blasi, and Richard B. Freeman, “Does Linking Worker Pay to Firm Performance Help the Best Firms Do Even Better?,” NBER Working Paper 17745 (2012); Azfar, Omar, and Stephan Danninger. “Profit-Sharing, Employment Stability, and Wage Growth.” Industrial & Labor Relations Review 54, no. 3 (2001): 619-630; Kraft, Kornelius, and Julia Lang. “Profit Sharing and Training,” Oxford Bulletin of Economics and Statistics 75.6 (2013): 940-961.