Sen. Bernie Sanders (I-Vt.) released an “income inequality tax plan” on Monday that would increase taxes on big companies where CEO pay is more than 50 times higher than that of the median worker.
Sanders, a fierce critic of income inequality who is seeking the Democratic presidential nomination, identifies the explosion in compensation for top corporate executives as a key factor depressing ordinary workers’ wages.
“At a time of massive income and wealth inequality, the American people are demanding that large, profitable corporations pay their fair share of taxes,” Sanders said in a statement accompanying the plan. “It is time to send a message to corporate America: If you do not end your greed and corruption, we will end it for you.”
Sanders’ proposal, which applies to publicly and privately held companies with annual revenue of $100 million or more, would increase companies’ corporate tax rate by 0.5 percentage points if their CEO received compensation worth between 50 and 100 times what the company’s median employee earned.
The higher a company’s CEO-to-median worker pay ratio would go, the higher the surtax it would endure under Sanders’ plan. The legislation would levy a 1-point tax hike on companies with CEO-to-median worker ratios between 100-to-1 and 200-to-1; a 2-point tax hike for those with ratios between 200-to-1 and 300-to-1; a 3-point tax hike for those with ratios between 300-to-1 and 400-to-1; a 4-point tax hike for those with ratios between 400-to-1 and 500-to-1; and a 5-point tax hike for those with ratios of more than 500-to-1.
CEO pay has exploded relative to the compensation received by ordinary workers in the past few decades. In 2018, the average CEO-to-median worker pay of a corporation in the S&P 500 index was 287-to-1, according to an AFL-CIO analysis of data collected by the federal government.
Prior to the 1970s, the gap between executive pay and that of ordinary workers at their companies was dramatically narrower. CEO compensation, including stock options, at the biggest 350 firms grew 940% since 1978, even as typical worker pay climbed just 12% over the same period, according to an analysis by the Economic Policy Institute. The EPI analysis, which looks at average, rather than median, worker compensation, found that the CEO-to-average worker pay ratio went from 20-to-1 in 1965 to 58-to-1 in 1989 to 278-to-1 in 2018.
The Institute for Policy Studies, a left-leaning Washington think tank, released a report documenting high CEO pay on Monday as well. The report found that at 50 publicly-traded companies with the highest CEO-to-median worker pay gaps, the median worker would have to work 1,000 years to earn the CEO’s pay.
The Sanders campaign estimates that if companies increased median worker pay to $60,000 a year and capped CEO pay at $3 million, no company would pay additional taxes under his plan. Assuming that corporate behavior does not change, however, the plan would raise an additional $150 billion in revenue over a 10-year period, which Sanders would use to fund his plan to cancel Americans’ $81 billion in medical debt.
“The American people are sick and tired of corporate CEOs who now make 300 times more than their average employees, while they give themselves huge bonuses and cut back on the healthcare and pension benefits of their employees,” Sanders said. “They want corporations to invest in their workers, not just dividends, stock buybacks and outrageous compensation packages to their executives.”
A February 2016 survey conducted by Stanford University broadly affirms Sanders’ suggestion that his proposal is popular. The poll found that while Americans usually underestimate how much CEOs get paid, nearly two-thirds ― 62% ― support capping their compensation, though just 49% said they wanted changes to come through government intervention.
Last week, Sanders unveiled a plan to tax the wealth of the richest 0.1% of households at gradually increasing rates. It goes considerably further than a proposal Warren released in January, prior to Sanders’ entry in the race, that would impose a 2% tax on wealth above $50 million.
Although Warren has not proposed a similar plan to tax CEO pay, legislation she introduced in August 2018, the Accountable Capitalism Act, would, among other things, require corporations to allow employees to elect 40% of corporate board members. The change could reduce CEO pay by giving workers a greater say in executive compensation.