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Lawmakers want to penalize companies for 'outrageous' CEO pay

A trio of lawmakers wants to crack down on “outrageous” CEO pay, by making companies pay a higher tax rate if their chief executives make a “disproportionate” amount of money compared to their workers.

“Income inequality is a huge issue and we have to rein this in,” said Rep. Barbara Lee (D-CA) in an interview with Yahoo Finance. “No longer should the government and taxpayers subsidize the CEO salaries. In fact, they deserve to have a penalty so that we can move forward and invest more in lifting people out of poverty.”

Lee, Sen. Bernie Sanders (I-VT) and Rep. Rashida Tlaib (D-MI) introduced the “Tax Excessive CEO Pay Act” this week, which they say would combat income inequality and corporate greed. Sanders is also running to become the Democratic nominee for president in 2020. He and Sen. Elizabeth Warren (D-MA) are running for the Democratic presidential nomination on platforms targeting the wealthiest Americans.

“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,” Sanders said in a statement.

A recent report from the Economic Policy Institute found CEO compensation has increased by 1,007.5% over the past three decades while workers have seen their pay rise by about 12%.

Lawmakers argue their bill would pressure companies to close the pay gap between CEOs and workers.

Democratic 2020 U.S. presidential candidate Senator Bernie Sanders speaks during a Climate Crisis Summit with Rep. Alexandria Ocasio-Cortez (not pictured) at Drake University in Des Moines, Iowa, U.S. November 9, 2019. REUTERS/Scott Morgan

If the bill were to become law, companies whose CEOs make more than 50 times the pay of the median worker would face a tax increase. The tax penalties would start at 0.5 percentage point and rise to 5 percentage points for companies that pay their CEOs more than 500 times the pay of the median worker.

The bill would also require private companies with revenues of $100 million or more to disclose their CEO-to-median worker pay ratio. The private companies would then be subject to the same increased tax rates.

Lawmakers say the bill would put pressure on companies to close the pay gap between CEOs and workers.

“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,” said Sanders.

Source: Sen. Bernie Sanders

In an interview with Yahoo Finance, Lee pushed back against the idea that the bill would be punishing executives’ success.

“We're just saying that taxpayers should not subsidize this success, that corporations should not be allowed to receive tax breaks if, in fact, the CEO compensation is at least 50 times that of the average worker,” said Lee.

Lee, Tlaib and Sanders make the case that taxpayers are subsidizing the executive salaries, because workers struggling to make ends meet often rely on taxpayer funded programs like Medicaid, nutrition assistance and public housing.

The lawmakers said the legislation could raise about $150 billion over 10 years.

“It’s a huge impact in terms of the amount of money that we would have to invest in domestic priorities. And in fact, it would really show that we finally have come to grips with the fact that we have to have a more equal society as it relates to working men and women and corporate executives,” said Lee.

‘Harms economic growth’

Garrett Watson with the Tax Foundation said the bill would not solve the problem it aims to address.

“While there may be disagreement over the right level of taxes the wealthy should pay, using the corporate income tax as a tool to reduce disparities in compensation would be a mistake,” Watson said. “The corporate income tax harms economic growth and lowers worker incomes, and the corporate income tax is one of the most harmful types of taxes on economic growth, reducing the incomes of the very workers Sanders aims to help.”

Watson went on to say lawmakers should simplify the tax code and lower taxes for all, which he said would increase economic opportunity. Lee acknowledged the bill will face an uphill battle in the Republican-controlled Senate.

“This is a marathon,” said Lee. “So we have to organize and we have to make sure that members of the Senate and the House understand the necessity to begin to address income inequality.”

Jessica Smith is a reporter for Yahoo Finance based in Washington, D.C. Follow her on Twitter at @JessicaASmith8.

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