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senate Bill S. 2849

Should Corporations’ Tax Rates Increase if Executives are Paid Excessively?

Argument in favor

Corporations that overpay their executives at the cost of fairly compensating the average employee or investing in the company’s long-term growth are short-changing American workers in favor of lining senior management’s pockets. Such companies are contributing to overall economic inequality in the U.S., and should be required to pay a higher corporate tax rate as a penalty for their failure to look out for workers’ best interests.

KansasTamale's Opinion
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last Sunday
It’s hard to make blanket assumptions about a company from just the salary of the CEO. BUT if that salary is 10% above the workers salary that company has enough money to pay more taxes. There is no reason for millions & millions going to the boss when the workers who actually know the bottom floor of that business and RUN the company make $30,000 or less. That’s what a $15.00 an hour minimum wage worker makes. Those Corporations that overpay their executives at the cost of the average employee are short-changing American workers & the people who buy their products. Such companies are contributing to overall economic inequality in the U.S., and should be required to pay a higher corporate tax rate as a penalty for their failure to look out for workers’ best interests.
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Jim2423's Opinion
···
last Sunday
CEO’s seem to get the biggest bonus’s and pay raises. Yet everyone with a brain knows it’s the floor worker who actually makes the company money. CEOs are the biggest overhead.
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Mindfulness's Opinion
···
last Sunday
Here’s where the so-called evangelicals-bible thumpers seem to ignore the Scriptures advocation of “...those who have more..should give more..” Or, do they accept...”Greed is Good..”. You know this truth, don’t you?
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Argument opposed

Runaway executive compensation is a corporate governance, not tax, problem — and it isn’t the federal government’s job to determine what excessive pay is. If lawmakers are serious about requiring companies to pay workers more, they should look to corporate governance reform, not the imposition of a tax penalty for high corporate executive compensation relative to workers’ pay, to compel corporations to raise workers’ raise.

Keith's Opinion
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last Sunday
It is not the governments responsibility to regulate this. If shareholders don’t like it they will take action. Government needs to stay out of business. In fact they need to stay out of everything possible.
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Bob's Opinion
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last Sunday
Taxation is theft, and companies should be allowed to pay as much as they want to whomever they want.
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James's Opinion
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last Sunday
Heck No! Get off this Socialist minded BS. Corporations need to draw the best and brightest in the business world! When that corporate exec brings his or her talent and know how too that corporation and makes not only that corporation but it’s shareholders and employees successful as well plus giving a lot of $$$$ to charity! That’s a winning situation And they should not be penalized! It’s one thing if they are sending jobs and manufacturing overseas and stuffing their own pockets however if they are truelly American with majority of their workers and business here then Bravo for them!
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bill Progress


  • Not enacted
    The President has not signed this bill
  • The house has not voted
  • The senate has not voted
      senate Committees
      Committee on Finance
    IntroducedNovember 13th, 2019

What is Senate Bill S. 2849?

This bill — the Tax Excessive CEO Pay Act — would raise the corporate tax rate on companies that pay their top executives over 50 times more than what they pay their most typical workers. The penalty would rise on a sliding scale, with a minimum of a 0.5% increase for companies with a compensation ratio of more than 50 but less than 100 to a 5% increase for companies with a compensation ratio of more than 500.

The full tax penalty structure under this bill would be: 

  • For companies with a compensation ratio more than 50, but not more than 100: +0.5% increase in corporate tax rate.
  • For companies with a compensation ratio more than 100, but not more than 200: +1% increase in corporate tax rate.
  • For companies with a compensation ratio more than 200, but not more than 300; +2% increase in corporate tax rate.
  • For companies with a compensation ratio more than more than 300, but not more than 400: +3% increase in corporate tax rate.
  • For companies with a compensation ratio more than 400, but not more than 500: +4% increase in corporate tax rate.
  • For companies with a compensation ratio more than 500: +5% increase in corporate tax rate.

This bill would apply to both publicly traded and privately held corporations with average annual gross receipts of at least $100 million for the three preceding years. This would make it the first time ever that such corporations would have to reveal the ratio between their CEO and median worker pay.

To prevent avoidance, this bill would direct the Treasury Dept. to issue regulations to prevent avoidance of this bill’s requirements. The Treasury Dept. would receive a specific grant of authority to address situations where companies manipulate their CEO-to-worker pay ratio due to the use of contractors or any other technique.

Corporations’ compensation ratios would be calculated as a ratio of CEO compensation to median employee compensation, as defined by SEC rules. If a company’s CEO didn’t receive a firm’s largest paycheck (as is the case at companies like Google and Twitter, where CEOs and founders take only nominal annual pay), the annual earnings of the highest-paid employee would replace the CEO compensation in the compensation ratio calculation.

Impact

American companies and corporations; CEOs and highly-paid executives and employees of American companies and corporations; and corporate tax rates.

Cost of Senate Bill S. 2849

A CBO cost estimate is unavailable.

More Information

In-DepthSponsoring Sen. Bernie Sanders (I-VT), a candidate for the 2020 Democratic presidential nomination, introduced this bill to rewrite the federal tax code to “tackle the inequality crisis created by corporate America’s unrestrained greed”:

“In America today, ordinary workers at some of the richest corporations are making poverty wages. Meanwhile, we’ve got a class of corporate CEOs who make hundreds—sometimes thousands—of times more than their employees. The last time I checked, corporations got by just fine when CEOs made a million bucks a year—one-tenth of what they make now. All around the world today, large, successful businesses manage to be profitable while treating their workers with dignity and not handing out obscene pay packages to their CEOs. If America’s corporate boards can’t understand the absurdity of paying their CEO friends—in one year—more than their workers will earn in a lifetime, then the Tax Excessive CEO Pay Act will help them figure it out.”

House sponsor Rep. Barbara Lee (D-CA) adds

“In the last four decades, inequality has ballooned in our nation and more and more wealth is going to those at the top while workers’ wages, especially for workers of color, have remained stagnant. It is unjust and unacceptable that the CEOs of major corporations are making an average of 287 times more than their average worker – with some CEOs making upwards of 1000 times more. The Tax Excessive CEO Pay Act will incentivize companies to reduce the CEO-worker pay gaps and pay their workers the wages they deserve. Because if companies can afford to pay their CEOs tens of millions of dollars, they can afford to raise wages for their employees.”

Nearly 30 economic justice and workers’ rights organizations expressed support for this bill in a joint letter

“The more corporations channel into executives’ pockets, the less they have for wages and other investments. 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. 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. Academic research indicates that extreme pay gaps also undermine business effectiveness by lowering employee morale, which in turn, reduces productivity and increases turnover… This bill would encourage corporations to narrow their gaps, reducing poverty and inequality all across the United States, while holding companies with outrageous CEO pay ratios accountable.” 

Howard Gleckman, author of Caring for our Parents and a senior fellow at the Urban Institute, argues that taxing companies to limit executive compensation doesn’t work

“If lawmakers think businesses are paying corporate execs too much, they probably should focus on corporate governance, not tax issues. If they do want to use the tax code to punish highly-paid managers, they’d be better off just raising the individual income tax on all very high-income taxpayers. Sanders, of course, has proposed that too, with a wealth tax and a high individual income tax rate. But if he thinks a tax penalty will reduce the pay gap, he may be disappointed with the outcome.”

Alex Edmans, a Professor of Finance at London Business School, warned against the politicization of CEO pay in a July 2016 Harvard Business Review article in which he argued that CEO pay is a shareholder problem that should be left to shareholders to fix: 

“[E]xecutive compensation has suddenly become a hot topic for winning the public’s approval… Politicians typically make two suggestions for pay reform. First, to cap, or at least force the disclosure of, the ratio of CEO pay to median employee pay. Second, to put pay packages to an employee vote, or… put workers on boards. While I agree that a) in many companies, pay is far from perfect and ought to be reformed, and b) that political leaders are right to be concerned about how wealth is distributed in society, there are a number of problems with the proposed approaches. It is shareholders who bear the costs of paying the CEO, and so it is unclear whether the government should intervene. A common argument is that high pay has indirect costs — in particular, it incents CEOs to take actions that hurt society. However, there is no evidence that the level of pay indeed has these effects… A second motivation to lower pay is to reduce inequality. However, attempts to curtail pay through regulation may backfire. Kevin J. Murphy describes how the entire history of executive compensation regulation is filled with unintended consequences. For example, the forced disclosure of perks in 1978 increased perks as CEOs could see what their peers were receiving; the 1984 law on golden parachutes – a response to a single contract at one firm — catalyzed the adoption of golden parachutes by alerting CEOs without them to their existence; and President Bill Clinton’s $1 million salary cap led to CEOs below the cap raising their salaries to above it, and those above merely reclassified salary as bonus. Thus, while the motivation to reduce inequality is sound, a focus on pay ratios may have similar unintended consequences – and could even increase inequality. A CEO might reduce his company’s pay ratio by firing low-paid workers, converting them to part-time status, or increasing their cash salary but reducing their non-financial compensation (such as on-the-job training and superior working conditions)... The bottom line is that, to the extent pay is a problem, it should be shareholders, not politicians or employees, who fix it.”

Low-wage employers argue that the nature of their industry determines their wage structure. They contend that it doesn’t make sense for them — as operations with large part-time, season, or entry-level employee pools — to have the same compensation ratios as corporations with higher-skilled (and therefore higher-compensated) employees.

This legislation has one Senate cosponsor, Sen. Elizabeth Warren (D-MA), also a candidate for the 2020 Democratic presidential nomination. Its House companion, sponsored by Rep. Barbara Lee (D-CA), has 18 Democratic House cosponsors.

28 major economic justice organizations, including the AFL-CIO, Americans for Democratic Action, Campaign for America’s Future, Center for Popular Democracy, and Service Employees International Union (SEIU), support this bill. Additionally, 13 academics, including professors from Cornell University, the University of Delaware, and American University, have expressed their support for this bill in a joint letter.


Of NoteSen. Sanders’ office notes that, according to research by the AFL-CIO, CEOs of successful U.S. corporations in the 1970s received about $1 million in annual pay — which worked out to roughly 20-30 times the average pay of their companies’ middle-class workers. Today, the typical Fortune 500 CEO is paid about $20 million a year — which works out to 200-300 times the average pay of a typical worker at their companies.

At some companies, the pay disparities are much larger than the already-high average:

  • Tesla’s Elon Musk makes 40,668 times more money than the median Tesla employee; and
  • Gap CEO Arthur Peck made 3,566 times more than the median company employee (who made only about $5,800).

Today, the average McDonald’s employee would have to work for over 2,000 years to earn what the company’s CEO was paid in 2018. A retail worker at Gap, meanwhile, would need to work for more than 3,000 years to reach the pay rate of former Gap CEO Art Peck.

According to a nationwide survey, over half of all Americans (62%, including 52% of Republicans and 66% of Democrats) support capping CEO pay relative to worker pay. In that survey, the typical respondent favored capping CEO pay at no more than six times the pay of the average worker.

In a letter expressing their support for this bill, 13 academics from a range of American higher educational institutions explain that the “explosion” in CEO, CFO, and other executive officer compensation is “part and parcel” of the “degeneration of the American economy from productive and labor-rewarding activity to stock-manipulating, bubble-blowing games of the rich and powerful.”

If current pay trends continue, this bill would raise about $150 billion in new taxes over the next decade. Had this bill been law in 2018, Walmart (which had a pay gap of 1,076 to 1) would have had an additional federal tax liability alone of $794 million.

Some local jurisdictions have already applied their own tax penalties on companies with wide pay gaps. In 2018, Portland, Oregon became the first jurisdiction to apply a tax penalty on publicly-traded companies with wide executive-employee pay gaps. Under the penalty, over 500 corporations — including Goldman Sachs, Oracle, Honeywell, Wells Fargo, and General Electric — that do business in the city are subject to the Portland pay ratio surtax. 

In March 2020, San Francisco will have a ballot measure for a CEO pay gap tax on the ballot. Additionally, legislators in seven states (California, Minnesota, Rhode Island, Connecticut, Illinois, Massachusetts, and Washington) have also introduced pay-ratio tax legislation like this bill.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / Yumi mini)

AKA

Tax Excessive CEO Pay Act of 2019

Official Title

A bill to amend the Internal Revenue Code of 1986 to impose a corporate tax rate increase on companies whose ratio of compensation of the CEO or other highest paid employee to median worker compensation is more than 50 to 1, and for other purposes.

    It’s hard to make blanket assumptions about a company from just the salary of the CEO. BUT if that salary is 10% above the workers salary that company has enough money to pay more taxes. There is no reason for millions & millions going to the boss when the workers who actually know the bottom floor of that business and RUN the company make $30,000 or less. That’s what a $15.00 an hour minimum wage worker makes. Those Corporations that overpay their executives at the cost of the average employee are short-changing American workers & the people who buy their products. Such companies are contributing to overall economic inequality in the U.S., and should be required to pay a higher corporate tax rate as a penalty for their failure to look out for workers’ best interests.
    Like (77)
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    It is not the governments responsibility to regulate this. If shareholders don’t like it they will take action. Government needs to stay out of business. In fact they need to stay out of everything possible.
    Like (46)
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    I support the notion behind this legislation to help reduce the ever-growing wealth gap which greatly limits other lower income groups from getting ahead. However, I am concerned about unintended consequences. First, I do not believe that large corporations are fundamentally corrupt; I do believe that any corporation acts in it’s own self interests which can be unfair and abusive to workers. Secondly, since many large corporations are global in nature, excessive taxation has and will continue to cause them to move more and more work out of this country and even their corporate offices to countries which offer much more favorable tax rates. They are not, in most cases, simply American Companies- only. I think, the best way to attack the wealth gap, and the CEO leveraged wealth gap is by increasing the marginal tax rates on high-income, high-wealth earners, legislation to incentivize corporations to view their workforce as assets and stakeholders contributing to their success, funding the IRS auditors of corporate taxes to enable them to take on the army of tax attorneys that corporations can afford in order to close the many loopholes used to avoid taxation and to highlight loopholes which exist that warrant legislative control, and finally- eliminating any ability of corporate profits to diverted in any way to directly or indirectly buy political influence. Big CEO salaries, in many cases, have more to do with their connections and ability to influence politicians than the products or services they provide to their customers. Legislation of the types I would prefer are not at all likely to get past the Republican Senate and would certainly be opposed by trump-Barr Inc.
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    CEO’s seem to get the biggest bonus’s and pay raises. Yet everyone with a brain knows it’s the floor worker who actually makes the company money. CEOs are the biggest overhead.
    Like (40)
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    Here’s where the so-called evangelicals-bible thumpers seem to ignore the Scriptures advocation of “...those who have more..should give more..” Or, do they accept...”Greed is Good..”. You know this truth, don’t you?
    Like (33)
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    Corporations that overpay their executives at the cost of fairly compensating the average employee or investing in the company’s long-term growth are short-changing American workers in favor of lining senior management’s pockets. Such companies are contributing to overall economic inequality in the U.S., and should be required to pay a higher corporate tax rate as a penalty for their failure to look out for workers’ best interests.
    Like (28)
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    Time to end corporate welfare and make all companies that do business here pay taxes
    Like (24)
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    Middle class people are carrying too much of the tax burden while these ridiculously wealthy people get away with paying barely anything
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    Taxation is theft, and companies should be allowed to pay as much as they want to whomever they want.
    Like (22)
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    20 to 1 that should be the ratio. 20 times the living wage is more than enough for anyone.
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    If they have enough money to pay the salaries for the CEOs and don't use it to pay their employees more then yes they should have to pay more in taxes. This bill would force corporations to look into using that extra money to pay their employees more, so they don't have to pay so much in taxes.
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    Absolutely. All CEOs do is juice their stock prices for themselves. CEO’s shouldn’t make 500 times the average workers wage nor should they get stock options and golden parachutes!
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    Yes, this is needed. There is a direct correlation to excessive pay and poverty. https://www.bls.gov/opub/mlr/1987/06/art4full.pdf
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    Corporate taxes PAID BY the corporations should make up 50% of revenue the federal government takes in. No pass alongs, no tax shelters, they pay.
    Like (15)
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    Absolutely their tax rate should increase just like mine does if I get a increase in pay. I have to pay more in taxes.
    Like (14)
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    Yes! This could potentially put a stop to this kind of nonsense!
    Like (13)
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    Socialism is just as much a part of America as is Capitalism. Who do you think pays for the roads that we all use? Who do you think pays for our massive defense budget? We need to level the playing field. The socioeconomic division in America is only getting worse. Civil servants, e.g. teachers, police officers, EMTs, firefighters, postal workers, nurses, janitors, maids and farmers give their lives to making society a better place. Corporate executives- greed- takes more than enough to justify their positions. And we wonder why there is social uprising and class warfare in this country.
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    Corporate wealth drives inequality. I’m ready to see both end.
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    If they can find the money to pay themselves more extravagantly, they can afford to pay taxes
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    Absolutely! I am tired of the big corporations getting big tax breaks and the executives getting big bonuses for doing their jobs. The small person ALWAYS loses. The rich get richer and the poor get poorer. It is the way it has always been but extremely tired of it, literally and figuratively.
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