WASHINGTON—Frustrated that few politicians pay attention to closing the pay chasm between CEOs and the rest of us. the Congressional Progressive Caucus and an outspoken progressive think tank, the Institute for Policy Studies, teamed up to craft a plan to do just that.
While the CPC did not issue a separate statement on the plan, crafted by IPS’s Inequality.org co-editor Sarah Anderson late last year, it backed the effort, and it’s also in line with the group’s agenda.
“Americans across the political spectrum are rightly fed up with up with overpaid CEOs. But many also feel there’s nothing we can do about this problem. That’s where they’re wrong,” Anderson declares at the outset.
“People can use their power as workers, shareholders, and voters to rein in excessive CEO compensation and narrow the yawning gaps between executive and worker pay.”
The centerpiece of their plan, parts of which are included in legislation by Reps. Barbara Lee, D-Calif., and Alexandria Ocasio-Cortez, D-N.Y., and Sen. Sheldon Whitehouse, D-R.I., are surtaxes levied on firms whose ratio of CEO pay to median worker pay is at least 50-1.
At the local level, the surtaxes have already taken off in San Francisco and in Portland, Ore., the joint Progressive Caucus-IPS report notes. “In 2016, Portland, Ore., adopted a surtax on companies operating in the city that have CEO-worker pay gaps of 100 to 1 or higher,” the report says. The obvious target there: Nike.
The AFL-CIO’s latest Executive Paywatch study, using federal data, reported Nike CEO John Donahoe II made $32.79 million in 2022, 60% of it in “value of stock awards” and “value of option awards.” Its CEO-median worker pay ratio: 795-1.
“San Francisco’s similar ‘Overpaid Executive Tax’ became effective on Jan. 1, 2022, with revenue expected to be about $125 million per year,” the IPS-Progressive Caucus report adds—no great surprise given the city’s a corporate headquarters for Silicon Valley firms.
Those excise taxes, levied against the companies, “would be proportional to the size of a company’s pay ratio and the size of their CEO’s paycheck… In 2022 alone, the bill would have raised more than $10 billion from the Fortune 100.”
And it would apply not just to publicly traded companies, such as Nike, but to privately owned firms—such as the “finance capital” hedge funds and the like, whose computerized electronic trades make their Wall Street denizens millions within minutes, with no federal regulation.
The catch, of course, is the surtaxes the three lawmakers champion hit the companies, many of whom use tax code loopholes their well-paid lobbyists pushed through Congress to escape paying any federal taxes at all, as Democratic President Joe Biden repeatedly points out.
Not hit individually
The surtaxes don’t hit the corporate chieftains individually. That’s far different from federal individual income tax rates, on the “last dollar” of a honcho’s earnings: 94% at the peak of World War II, 91% from 1951-63, and 69.13% in 1981, the year before GOP President Ronald Reagan’s tax cut kicked in.
That tax cut saw the top rate drop to 50% the next year, the Tax Policy Center reports. The 2017 Trump-GOP tax cut reduced it to 37%.
One way IPS and the Progressive Caucus propose to cut high corporate pay is to crack down on stock buybacks, which enrich not just the corporate class but the financial denizens of Wall Street. The Democratic-run 117th Congress imposed a 1% tax on buybacks, through the Inflation Reduction and Jobs Act. Biden wants to quadruple that rate, the report notes.
Biden’s CHIPS Act—the bipartisan measure to encourage greater U.S. production of semiconductor chips—also has a tax break for firms that refuse to engage in stock buybacks.
The study endorses legislation by Rep. Jan Schakowsky, D-Ill., to extend that break to any firm that has a CEO-to-worker pay ratio of 100-1 or less—and that signs a neutrality pledge covering union organizing campaigns.
Regulators could also clamp down harder on excessive CEO pay, the report says. That’s what Sen. Chris Van Hollen, D-Md., and Rep. Nydia Velazquez, D-N.Y., propose.
“The 2010 Dodd-Frank financial reform legislation included” a ban on “Wall Street incentive pay that encourages ‘inappropriate’ risk-taking. Regulators failed to implement this rule, despite continued financial recklessness, as Public Citizen has thoroughly documented. But under the Biden administration, the responsible agencies have been working to finalize this regulation.” It’s “long overdue,” the study says.
The two lawmakers offered specific proposals for executive pay restrictions, which the report endorses: “A ban on stock options, long-term deferral of all bonus pay, and a requirement that executives personally pay the costs of fines resulting from recklessness.”
“Excessive executive compensation…affects all of us. Extreme pay divides are a key driver of the inequality that is concentrating economic and political power in the hands of a privileged few.
“Today’s CEO pay practices also incentivize reckless behavior that puts us all at risk. The 2008 financial crisis. when executives chasing bonuses drove our economy off a cliff, is one example. The CEO pay system also perversely rewarded executives for slashing jobs, cooking the books, accelerating climate change, dodging taxes, and flooding communities with opioids,” it says.
They’re even “bad for business,” leading to low worker morale and high turnover. Though the report didn’t say so, Amazon, which both the independent Amazon Labor Union and the Teamsters have targeted for organizing drives, is a prime example of those trends.
“In short, government officials have a responsibility to address a CEO pay problem that is causing wide-ranging social and economic harms. Fortunately, they have many policy options that could do the job.”
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