16
votes
Bernie Sanders' US CEO corporate tax plan
Link information
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- Title
- Bernie Sanders wants to tax companies that pay their CEOs way more than their workers
- Published
- Sep 30 2019
- Word count
- 1208 words
I'd be curious to see some feedback on this.
Summary:
At a glance it looks like a smart policy, albeit with a few challenges that will need to get ironed out. Functionally, it adds a tax to companies based on the ratio of CEO pay to that of the median employee. The higher the ratio (i.e. the more the CEO gets paid relative to the median), the higher the tax.
Strengths:
This creates an explicit connection between executive compensation and that of the workers and may, over time, foster a sense of investment among the former towards the compensation of the latter.
It provides a way for companies to pay their CEOs less without worrying about losing out on talent to companies that pay more for executive talent. The companies paying more are actually paying for the privilege.
This might mean that legislation mandating a living wage might actually not meet with tons of opposition from executives. (I won't hold my breath).
Challenges:
$100 M in revenue is pretty big, but might make it a tough pill to swallow for some mid-sized businesses. It'll be hard to make this play in suburbs and exurbs, where lots of consolidated car dealerships and law firms and doctors' offices can end up clearing $100M. Those guys have a lot of clout in political organizing locally.
There are potentially some industry effects here. Some companies, like McKinsey or Goldman, mostly just hire knowledge workers who get paid well. This means their median worker's compensation is inherently higher than a company like Waffle House or WallMart, where they're hiring cheaper labor. This means top executive talent might prefer those companies for no good reason at all.
This may also encourage executives to start futzing with the metric (pay ratio) in ways that are deleterious to the health of the company overall. For example, they may begin to farm out a lot of the lower wage paying jobs to temp agencies, outsourced vendors, contractors, etc. independent of how smart a business decision it is.
This is a tough one for me. I'm going to start off basically critical of any tax plan that benchmarks based on a metric that can be gamed. Like ItchyOuch mentioned, there is salary, and there is other compensation. A law like this opens the door for multiple interpretations, legal battles, accounting tricks, etc... I know he's running for president, and he likes to talk about the ratio of CEO pay to their employees a lot, but with that said, this feels more like a meme talking point than a sound policy.
This ratio should be something that we observe, and potentially use as a metric for a serious tax overhaul. Using it directly as an input sounds like a pretty bad idea, and a textbook case of Goodhart's Law
Right, but here we have an example provided in the article of a tax like this that was already put in place by Portland, to huge success:
Obviously this shouldn't be the end-all-be-all, but things like outsourcing can be compensated for once we actually get down to putting a bill together. Not to mention holes can be plugged by amendments to the bill should large companies start to pull some of this crap.
I don't want to be negative, and I'm not knowledgable enough about policy to really engage here.
I'll just say that I suspect the amount of political capital it would take to implement anything like this bill at a national level would be extremely expensive. I also suspect that there are simpler ways to raise money from large corporations.
Why not start with plugging some holes that we already have?
Overall it seems like we could just raise the long term cap gains rate from 15%, 20% to 18%, 25% or something, and raise just as much money from the same people. Again, I understand that he's running for president and this ties in with his branding, and he's trying to make a very progressive political point. I just think that if he actually wins, a simpler approach would be better.
Sure, but you don't start at the compromise, right? Obviously this is a pie-in-the-sky proposal, but as we've seen in the past, starting with "reasonable compromise" proposals is a great way to get absolutely nothing done.
But...that's also something he's proposed?
https://time.com/4194179/bernie-sanders-tax-plan/
It's a bad pie. Raising capital gains taxes to 60% on the highest earners is also pie in the sky but it's a much better pie.
This tildes topic is about the CEO tax, not Bernie's platform as a whole. This particular idea about tying taxes to the CEO pay ratio is a loser in my book. That has no bearing on what I think of the rest of his ideas. I think the fact that it's been done in Portland is pretty much irrelevant. I don't think that we need 6 different ways to extract wealth from the rich. We need capital gains taxes, corporate income taxes, and potentially net worth taxes. Nickel and diming businesses or people on specific things is silly. I would put this proposal up there with:
The point is, you can pay the maid under the table. Hire a black CEO that report to a white executive CEO. Rent a private jet from a company that you own and are the only customer of. It's so trivially easy to get out of it. It takes a political sound byte too far. Just raise existing taxes and move on to another issue. I respect anyone else's opinion on this. I'm just saying as a voter, this proposal makes me less interested in Bernie overall. It feels like an inauthentic political move, not a serious tax proposal.
Right, but you specifically said:
As if he wasn't suggesting doing just that.
Isn't it a demonstration of how effective such legislation would be?
Equating the examples you provide with income inequality and disparity among large companies is disingenuous, no? Income inequality among CEOs is a huge indicator of just how oligarchic our society has become.
When bundled with the rest of his tax proposals, it's a multi-pronged effort meant to take the bite out of the US's massive income inequality. The fact that this somehow makes you less interested, when you yourself have stated that most aren't likely to pass and make it into law, doesn't seem to make a lot of sense.
Most of these sort of thing ends up being ironed out in the details of legislation, which I why I raised them as "challenges" rather than "flaws." Gaming things out is a challenge for the legislator to set it up to not be abused too heavily. Flaws are more issues fundamentally with the concept. Many of these aren't really that easy to game either. Executive compensation, including for the CEO, is usually determined by a formula that pegs it to that of other board members, the C-Suite, etc. and gets approved by shareholders. Changes to compensation packages have to go through some checks, most of which is already being done to minimize income tax burden as it is.
Overall I'm not categorically opposed to nickel and dime nudges to encourage better corporate citizenship. In this case, CEO/Pay to worker pay ratio isn't the core issue being addressed, it's a broader philosophical concern about the well being of an organization's workforce being decoupled from the fortunes of their executives and management. To do that, this creates an explicit connection between the latter and the former. In other words, it's meant to address inequality, not the tax burden on rich people being too low.
The objective isn't to pull more money from the rich in this case, it is to encourage companies to invest more in pay for their workers instead of ballooning executive salaries. Functionally, it's a "soft" price ceiling on executive pay that you can pay extra if you really want to blow through it.
There are other, arguably better, levers to pull here. I think the main issue would be reforms to corporate governance to reduce the influence of certain segments of investors. But that's way harder to design for.
I think what you mean by this is it's sending some kind of message about what the acceptable morals are in society. That's not something I think the government should do. And like I've been saying in other posts, it's the easiest thing in the world to sell to a republican base to repeal a law like this because it implies a moral stance that they don't agree with.
If you mean exactly what you said, that you want to address inequality, then raising taxes on the rich accomplishes that. The rich having less money decreases inequality. The difference between this tax plan and simply raising existing tax rates is that this tax plan is essentially "dabbing on the haters". It's tying explicitly progressive political goals to tax policy. Raising capital gains taxes is something that you can sell to different personas. Fiscal conservatives want to balance the budget, progressives want to increase social wellbeing programs and need to fund them.
For what it's worth, I went through the exercise of running the numbers for wal mart: https://imgur.com/a/dloF0wW
They can either raise their employee's salaries to $200k a pop ($480 billion total in raises), or they can pay the additional $600 million in taxes (that they will get out of paying, somehow). The other thing they can do, which maybe you're thinking they will do, is cut the compensation of their CEO from $22 million to $2 million. They will obviously not do this, as the other executives listed in their SEC filing all made more than $9 million last year. The CEO will not make less than the people who report to him. So in essence, you're just raising taxes on Walmart by $600 million. I can get behind that outcome, but it can be done more simply.
The other thing that this crudely overlooks is what kinds of businesses people are in. In Bernie's own proposal, he cites Nike and JPM. Nike (who by the way is already paying this tax in Portland, right? And did not actually change their pay structure as a result) pays their employees $25k a year. Tons of their employees are probably on some kind of government benefit. JPM employees make $75k a year. Even the least paid people at JPM are probably doing alright. Probably very few of them are on welfare. Both CEOs land at 380 on the ratio though. JPM made 34 billion in profit last year, Nike made 4 billion. So the additional tax on JPM is 1 billion (nearly double that of Walmart). The additional tax on Nike is only $120 million. So even though Nike and Walmart have large swaths of employees taking advantage of welfare and they are the kinds of employers that Bernie would say need to pay their "fair share", JPM is the company that would be most impacted by this tax. Maybe JPM has their own issues related to predatory lending, discriminatory banking practices, etc... But not paying their employees enough is not really the calling card of big banks.
Again, at the end of the day, I'm here for some new taxes, especially targeted at the richest individuals and most wealthy companies. I just think that simple is better. Just like universal basic income works because it's simple, taxing capital gains, income, and wealth work because they are simple.
The government does whether you think it should or not. How bureaucracy works is a serious determinant of how culture gets determined. You don't notice all the ways the government structures your values and your world-view because it would be like a fish noticing water. It's everywhere. It influences everything. The only question is whether you factor these effects into your decisions or don't and continue to be blissfully unaware of second or third order effects of actions.
Just one example, did you know last names weren't really a thing until central governments started doing censuses? They basically invented the "first name, last name" format as a way to identify someone to make it easier for the government to track where people lived. Prior to that, people would have been uniquely identified by all sorts of epithets based on context. They wouldn't have had to pick just one. Now thing about how much cultural weight last names have. Marriages, who inherits, what it means to bear these names.
I mentioned earlier that CEO pay is usually determined by a formula and is in proportion to the rest of the board and high level executives. Reducing the CEO's pay functionally reduces the pay of all the top executives. And, in an ideal world, this tax would raise no money at all. The best outcome would be for all the executive compensation saved to get sent back into payroll for people further down.
Not really. That's a reactive correction to inequality. This is a proactive prevention of inequality AND the skewed power dynamics it creates. In the latter case you haven't changed people's behavior at all. Executives are still making decisions to maximize their pay and reduce pay down the pay scale as much as they can. You haven't nudged them to make better decisions.
We have a fundamental disagreement here. You can't write a law that will change the behavior of CEOs. You say that "in an ideal world" CEOs and all other executives would reduce their salaries to avoid paying the taxes, but that's simply not what would happen. They would either pay the tax, or find a loophole to avoid paying the tax, whatever is cheaper. I don't know where you're getting this idea that they would simply choose a 90% tax cut instead. And even if they did (which they won't), you'r talking about a $10 raise for each employee (in the case of walmart). You're not "proactively preventing inequality" by giving everyone $10.
If they pay the tax, then you're getting tax revenue. If they don't pay the tax, then they're cutting their pay. Either way this seems like a win.
And if they pay a tax they don't need to be, then they will hear it from shareholders and dissenters on their board.
This number is just made up and I have no idea what you're basing it on. It also doesn't have to be a raise for each individual employee. It could also manifest as more fringe benefits or better provision of public goods across the organization. The most direct variable they have to manipulate here is top executive pay. Where the money saved by not paying them goes will vary based on the organizations' priorities. The only focus is preventing the constant upward bidding of management salaries and the Baumol's-disease it encourages.
The other minute detail I'm curious about is how to reconcile deferred equity based compensation and whether various loopholes will be found to reduce the pay gap. Executives at my company maybe make 200-500k base salary; only the CEO has a 1M salary. However, they get paid 5-100M in equities along side some 1-4x multiple cash bonus of their base salary. If say the stock triples between receiving and selling, for a huge payout, I can see companies being up in arms about how their excellent stock price incurred an additional 1% of taxes that they were not anticipating.
Perhaps executive travel
I think that has more to do with the capital gains tax hike Sanders wants to implement:
https://time.com/4194179/bernie-sanders-tax-plan/
I don't understand what problem this solves that can't be solved with a simpler, and harder to game income/capital gains tax.
What's special about a CEO at a midsized consulting firm that makes billions per year vs the CEO of a large chain of warehouses with far more employees?
It's paired with a harder to game income/capital gains tax.
https://time.com/4194179/bernie-sanders-tax-plan/
The inequality shows that the owners are extracting far more out of their workforce than the workforce are getting in return.
I generally do not agree with these sort of gotcha taxes, where specific criteria is provided to punish certain entities. I will echo the other posters who hope for a simpler tax plan, that simply focuses on raising rates.