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Pay Your CEO Too Much? Then Pay A Higher Corporate Tax Rate

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Tackling wealth inequality is admittedly hard. The rich have access to very good accountants, lawyers and lobbyists. There are a lot of places for them to stash their wealth, loopholes are easy to create, and they can always move (though they don’t carry out the threat nearly as often as conservatives would have you believe) if they really don’t like or can’t escape the tax bill. Solving the problem requires a variety of approaches from many different angles: wealth taxes, financial transaction taxes, estate taxes, corporate taxes, loophole elimination, campaign finance changes, tax haven penalties, etc. Any one of them may be fail or be easy for certain classes of individuals to escape, but collectively they can both put a dent in the deficit allowing for greater expenditures on social services and climate change abatement–and more importantly, they can reduce the sheer amount of corrosive wealth inequality that is eating away at our democracy. Reducing the amount of the money hoarded by the obscenely wealthy would be a good thing on its own merits, even if it were merely burned in a bonfire rather than added to the Treasury.

That’s why yet a new proposal from a bevy of progressive lawmakers comes as a welcome and innovative addition to the policy arsenal: increasing the corporate tax rate in accordance with the gap between CEO pay and median worker pay. Here’s the general idea:

Sen. Bernie Sanders (I-Vt.), Rep. Barbara Lee (D-Calif.) and Rep. Rashida Tlaib (D-Mich.) introduced the Tax Excessive CEO Pay Act, which rewrites the federal tax code to tackle the inequality crisis created by corporate America’s unrestrained greed.

The typical restaurant employee at McDonald’s would have to work for more than 2,000 years to earn what the company’s CEO Chris Kempczinski received last year. A retail worker at Gap Inc. would have to work for more than 3,000 years to receive the annual compensation of Gap’s former CEO Art Peck. Peck’s pay was increased by 33 percent in 2018, even after he presided over years of declines in sales and stock prices.

The Tax Excessive CEO Pay Act would pressure corporations to curb these outrageous pay gaps that are the norm today, by imposing graduated taxes for companies that pay their CEO more than 50 times the pay of the median worker. The tax penalties would begin at 0.5 percentage points and rise to 5 percentage points for firms compensating their chief executives at more than 500 times the rate of their workers. A recent report by the Institute for Policy Studies found that 80 percent of S&P 500 firms paid their CEOs more than 100 times the pay of their median worker.

Many of the firms lavishing multi-million-dollar compensation packages on their top executives rely on taxpayer support—through public housing, nutrition assistance, and Medicaid, for example—to assist full-time workers who struggle with poverty wages.

CEO pay around the world, and especially in the United States, has become outrageous. While the average worker has only seen their compensation grow by 12% since 1968, the pay of the average CEO has increased by a whopping 940% since 1978. It’s not just an outrageous injustice that so many workers are being laid off, offshored and made insecure while the top executives make a killing. It’s also an outrageous injustice on its own merits that offends our very sense of how the economy is supposed to work: after all, it’s not as if CEOs are now a thousand times more productive than they were 40 years ago. In fact, the opposite is true: CEOs used to stick with a company for nearly a lifetime, their own reputation and financial well-being tied to the company’s. Now they’re migrant mercenaries goosing quarterly profit in the short term while leaving the next guy holding the bag to deal with the consequences of the corners they cut. It breaks our understanding of the social and moral compact that underpins the political economy and the credibility of modern capitalism itself as an economic system. It would be great to pass the money being funneled to CEOs back to workers either in the form of wages or social program redistribution–but failing that, it would serve a valuable social good just to burn that money in a fire rather than continue to deliver it to the undeserving rich to buy another yacht.

Critics will call this a gimmick that doesn’t singlehandedly solve the problem, but ultimately that isn’t the point. First, it delivers a key political message: we understand that the economy is broken, that the social fabric is fraying, that the wrong people are being overcompensated for the wrong reasons, and that we intend to do something about that specifically.

Second, it attacks one of the aspects of wealth inequality in a direct, pre-distributive way. Rather than trying to claw back money from the obscenely wealthy after it has already been paid out, it incentivizes corporations not to give it to them in the first place. It puts coolant in the overheating engine that has been sending CEO pay skyrocketing to absurd levels in a chummy bidding war caused by too much corporate sitting around with too few places to go productively, in the hands of a class of executives all too happy to distribute egregious sums to their friends and fellows.

Obviously, unless Democrats can both win the Senate and bypass the filibuster somehow, this policy is dead on arrival against a wall of GOP obstruction. But it’s good to have in the back pocket in the meantime, and it would also serve as excellent policy to campaign on as we approach, reminding the American people who is actually on the side of the average worker to build a fairer economy.

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Thanks !

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