A new congressional bill would deliver heftier IRS bills to corporations that overpay their top executives at the expense of their workers.
Institute for Policy Studies experts have advocated for such policies since the 1990s, the decade CEO pay at big U.S. corporations began soaring into the stratosphere.
A recent IPS report finds that 80 percent of S&P 500 firms last year paid their CEO over 100 times their median employee pay. At 50 publicly held firms, workers would have to toil at least 1,000 years to make as much as their boss made in just one.
The new legislation, introduced November 13 by Senator Bernie Sanders and Representatives Rashida Tlaib and Barbara Lee, would impose graduated tax increases on corporations based on the size of the gaps between their CEO and median worker pay.
Under the Tax Excessive CEO Pay Act, the tax hikes start at 0.5 percentage points on companies with gaps of 50 to 1 and top out at five percentage points on firms that pay their CEO more than 500 times median worker pay.
“If companies can afford to pay their CEOs tens of millions of dollars, they can afford to raise wages for their employees,” said Rep. Lee in a joint statement with Tlaib and Sanders.
Tlaib, who represents Detroit, pointed out that the CEO of GM made nearly 300 times median income at the company last year. This fall, pay disparities provoked a strike among GM workers that was the longest in the auto industry over the past 50 years. This new bill “will help ensure there is more fairness in the workplace when it comes to wages,” Tlaib said. “It’s common sense legislation on the path toward justice for all.”
Original co-sponsors of the bill include Senator Elizabeth Warren (D-Mass.) and 16 House Democrats.
Twenty-nine leading labor, anti-poverty, and other economic justice organizations issued a statement in support of the bill.
“The more corporations channel into executives’ pockets, the less they have for wages and other investments,” the joint statement notes. “By putting a tax penalty on corporations with extreme pay gaps, the bill would give corporations an incentive to narrow their divides by lifting up the bottom and bringing down the top of their pay scale.”
“The tax would also discourage the outrageous levels of compensation that give executives an incentive to take excessive risks,” the civil society statement adds. “Wall Street’s reckless ‘bonus culture’ proved a key factor in the 2008 financial crisis. Current executive compensation practices also contribute to short-term decision making that leaves payrolls, employee training, and R&D budgets slashed.”
The bill’s backers hope corporations would respond by lifting up the bottom and pulling down the top of their wage scales. But if they refuse to share corporate resources more equitably, companies with big gaps would have to contribute more to federal coffers. This revenue, in turn, could be invested in projects and services that reduce poverty and inequality.
IPS researchers have found that if the just-introduced bill’s proposed tax penalties had been in place last year, S&P 500 companies with pay ratios above 100 to 1 would have owed as much as $17.2 billion more in federal taxes.
Walmart alone, with a pay gap of 1,076 to 1, would have owed an extra $794 million in federal taxes in 2018 with this penalty in place. With those millions, the federal government could have extended food stamp benefits to 520,997 people for an entire year.
CVS, a drug store chain with a 618-to-1 ratio, would have added a revenue stream that could have provided annual Medicare prescription benefits for 33,977 seniors.
The new federal bill will give a boost to campaigns for such taxes at the state and municipal levels. Policymakers in seven state legislatures have introduced similar proposals, and San Francisco voters will find a proposal for a CEO pay gap tax on their March 2020 ballots. Portland, Oregon became the first jurisdiction to begin collecting revenue from this type of tax in 2018.
“If corporations can’t understand why it’s absurd to pay their CEOs more in a year than their workers will earn in a lifetime,” Sanders said in a press statement, “then maybe this legislation will help them figure it out.”
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