A proposal in D.C. would create penalties for big CEO salaries

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The U.S. Capitol in Washington, D.C. (August 2019)

WASHINGTON, D.C. (WLNS) – A new proposal on Capitol Hill would penalize companies that pay their CEOs many times more than their average workers.

Independent Vermont Senator Bernie Sanders and three Senate Democrats unveiled the “Tax Excessive CEO Pay Act” this week. Right now, in general, the federal corporate tax rate in the United States is 21%. Under this bill, companies that pay their CEO more than 50 times the median salary of their workers would see an increase in their corporate tax rate.

A corporation where the CEO makes…

  • 50 to 100 times the median employee income would pay 21.5%
  • 100 to 200 times the median employee income would pay 22%
  • 200 to 300 times the median employee income would pay 23%
  • 300 to 400 times the median employee income would pay 24%
  • 400 to 500 times the median employee income would pay 25%
  • more than 500 times the median employee income would pay 26%

The penalty would be calculated based on the compensation of the highest-paid employee of the company, even if it’s not the CEO.

The federal corporate tax rate was 35% from 1993 until it was cut by the 2017 Tax Cuts and Jobs Act. According to the IRS, the current rate is the lowest since 1939. It was more than 50% from 1951 through 1963 and peaked at 52.8% in 1968 and 1969.

Those in favor of the bill blame the disproportionate growth of executive salaries for the expanding wealth gap in the United States. According to the Economic Policy Institute, from 1978 to 2018, compensation for CEOs grew by 940% while pay for the typical worker only grew by 12%.

Republicans have voiced opposition to the bill. According to the Washington Post, during a Senate Budget Committee meeting examining CEO compensation, Sen. Lindsey Graham said improving education and opportunities for low-income communities is the best way to address income inequality, rather than focusing on the wealthy.

Financial experts also warn such penalties could have unintended consequences. Rather than paying workers more, warns Fox School of Business accounting professor Steven Balsam, companies may choose to reduce their number of low-income employees. This would raise the median employee salary without actually increasing compensation for workers.

Click here to read the text of the Tax Excessive CEO Pay Act.

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