Peninsula Newspapers, Inc., approaches Louis Kelso to develop a succession plan. Co-owners, both in their 80s, seek retirement without selling the company. Employee ownership is their desired option, but employees lack the capital to purchase the company. This leads Kelso to suggest borrowing through the company's IRS tax-qualified profit-sharing plan, which allows the loan to be paid off with before-tax dollars. Kelso dubs his innovation the "second income plan."

Expanding the employee ownership concept, Louis Kelso creates the world's first Consumer Stock Ownership Plan (CSOP), a trust that provides equity shares to consumers. The SCOP allows a group of dairy farmers in California's Central Valley to become customer/owners of Valley Nitrogen Producers.

Louis Kelso and Mortimer Adler co-author The Capitalist Manifesto. The book presents the economic and moral case for employee ownership, arguing that a) wealth disparity is a negative force in society; b) most workers are excluded from ownership and prosperity, as they can only rely on their paychecks and have no way to acquire capital; c) with technological advances, capital will continue to become more productive, labor will find itself at an ever-greater disadvantage, and inequality will continually increase; and d) the working class can acquire an ownership stake in the economy with borrowed capital. Kelso calls this the "second income" principle.

The Employee Retirement Income Security Act (ERISA) is scheduled for a Congressional vote. The original version of the law prohibits any kind of lending within qualified retirement plans, effectively making leveraged ESOPs illegal. Kelso is introduced to Russell B. Long (D-LA), head of the Senate Finance Committee and "arguably the most powerful member of the Senate" at the time. Long sees merit in the ESOP concept and becomes a supporter, helping introduce language into ERISA that defines ESOPs and preserves their tax-advantaged status.

The law contains requirements for companies with defined benefit plans to keep enough cash reserves to fund repurchase when employees retire. It's the first law to put a reference to ESOPs in the Internal Revenue Code (IRC); due to the fact that ERISA included extensive regulations prohibiting borrowing in context of defined benefit plans, Sen. Long's ESOP provisions took the form of an exception to these regulations. To this day, much of the ESOP framework is defined in the prohibited transaction section of the IRC: § 4975

The Tax Reduction Act of 1975 created a corporate tax credit for ESOPS (TRASOPs). This 1% credit was available to the corporate taxpayer with respect to qualified investment where at least one percent of the qualified investment is contributed to an ESOP.

The Economic Recovery Tax Act of 1981 (ERTA) replaced the TRASOP with the PAYSOP, which provided a tax credit of 1/2 percent of payroll based on the compensation.

The Revenue Act of 1978 puts new ESOP rules on the books, creating IRC Section 409A which regulates nonqualified deferred compensation: § 409A. This section defines which benefit plans can qualify as a "tax credit ESOP."

Major tax bill passes Congress: the Tax Reform Act of 1984 includes a number of tax incentives, both general and specific to ESOPs. In order to incentivize bank lending to ESOPs, the law includes a 50% exclusion from income tax for interest paid on ESOP loans. The law also introduces deduction limitations for ESOPs, and allows owners who sell to ESOPs in C corporations that own at least 30% of the stock to defer capital gains taxes by reinvesting in other companies. The Act repealed the payroll based ESOP tax credit.

Chairman of the House Ways & Means Committee Dan Rostenkowski makes a revenue reconciliation proposal (H.R. 2572) that would repeal the interest exclusion for ESOP loans, which permitted the lender to avoid paying taxes on 50% of the interest received for an ESOP loan. Rostenkowski's proposal estimates the action to bring over $10 billion in revenue in the 1990–94 fiscal years. Due to intensive lobbying by the ESOP Association, the tax benefits remain on the books, but with a number of restrictions adopted in the Omnibus Budget Reconciliation Act of 1989. (101st Congress (1989–1990) H.R.3299.ENR, Section 7301-7304)

Interest income exclusion for ESOPs repealed by Congress in the Taxpayers Relief Act.

The Small Business Job Protection Act (SBJPA) of 1996 widened the availability of ESOPs by allowing S corporation shareholders to participate.

Today, there are roughly 13.5 million ESOP participants.