Bernie Sanders floats new taxes on companies with high CEO-to-median worker pay ratios

Sen. Bernard Sanders on Monday pitched a plan to slap an “inequality tax” on companies with high CEO pay to prod them to give their workers a raise, planting the latest flag in the 2020 Democratic presidential candidates’ push to penalize the wealthy.

Mr. Sanders defended the plan as trying to make big corporations pay their “fair share,” even as economists and analysts warned that government intervention into the private sector could backfire as companies compensate for the higher taxes on the backs of would-be beneficiaries.

The Sanders campaign said the proposal would generate $150 billion over a decade and sought to shine a light on the disparity in CEO-to-worker pay gaps at major U.S. companies such as Walmart and McDonald’s.

“At a time of massive income and wealth inequality, the American people are demanding that large, profitable corporations pay their fair share of taxes,” the Vermont senator said. “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.”

Under the plan, a company that pays its CEO more than 50 times the salary of a median employee would pay at least an additional half-percentage point in corporate taxes.

It would apply to all publicly and privately held companies with annual revenue of more than $100 million. The ratio would be based on the highest-paid employee if the CEO isn’t the person who makes the most money.

The plan continues Mr. Sanders’ years-long emphasis on combating corporate greed and wealth inequality, and comes about a week after he released a separate proposal to implement a new $4 trillion-plus tax on the super-wealthy.

That followed Sen. Elizabeth Warren’s proposal to levy a tax of at least 2% tax on assets of more than $50 million and calls from other 2020 Democratic contenders such as former Vice President Joseph R. Biden to close loopholes and squeeze more taxpayer money out of upper-income earners.

But analysts said that while picking on the rich is a relatively easy political pitch in a Democratic primary, Mr. Sanders’ latest proposal could backfire on the very people he’s trying to help.

There’s nothing in the proposal to force companies to pay workers more, it’s not clear who would be subject to the new tax, and the costs could get passed on in the form of lower pay to workers and lower returns for shareholders, said Doug Holtz-Eakin, a former director of the Congressional Budget Office.

“Other than that, I like it — you know, it’s great,” said Mr. Holtz-Eakin, who now heads the free-market American Action Forum.

Rather than increase the pay of low-income workers, the plan would create an incentive to recategorize those employees, convert them into independent contractors, or reduce their hours, said Nicole Kaeding with the National Taxpayers Union Foundation.

“The heart of this is really this misunderstanding of who pays taxes,” Ms. Kaeding said. “Companies write checks to pay taxes, but they don’t bear the cost of the taxes — their workers do, their consumers do, their shareholders do — i.e., people.”

The Sanders campaign provided information on a handful of companies to try to make their point, saying, for example, that Walmart’s CEO made close to $24 million last year — 1,076 times more than the median Walmart worker’s salary of $21,952.

But the CEO salary is a small fraction of the company’s estimated sales of $500 billion per year, said Chris Edwards, director of tax policy studies at the libertarian Cato Institute.

“Indeed, bringing low prices to hundreds of millions of consumers is such a huge responsibility that it makes sense for Walmart to pay a lot to get the best possible CEO,” Mr. Edwards said.

Under the 2010 Dodd-Frank financial reform law, publicly held companies are now required to disclose the ratio of CEO pay to median worker pay — a provision that went into effect last year.

Lawmakers in a handful of states, including California, also have proposed legislation similar to Mr. Sanders’ plan. Portland, Oregon, passed a surtax on companies whose CEOs make more than 100 times what their median workers do, with the additional revenue intended to go toward funding social services.

Voters in San Francisco are also set to weigh in on a proposed ballot item on the issue in March.

The “sky didn’t come falling down” and Portland didn’t see an exodus of business investment as a result of its new rules, said Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies.

“I think that that should be encouraging — they knew all along that Portland, Oregon, was not going to change the executive compensation system in America, but they did want to help spark a broader movement,” she said.

“For me, the primary goal is to address the extreme gaps between CEO and worker pay, which have been a major factor in driving the skyrocketing levels of inequality in this country,” she said.

Mr. Sanders’ proposal comes as he and other 2020 Democratic presidential contenders are trying to figure out how to make the wealthy pay more, with many suggesting rolling back parts of the GOP tax cuts to pay for other priorities.

Stephen Prince, vice chairman of the advocacy group Patriotic Millionaires, said he likes that the Sanders plan puts the responsibility on companies.

“They are the ones that need to think twice before giving out massive bonuses while the majority of their workers can’t even afford basic living costs,” Mr. Prince said. “I’d just say there are multiple people in the C-suite of these major corporations, so why should we limit this just to the CEOs?”