Two California state senators, Mark DeSaulnier (D-Concord) and Loni Hancock (D-Berkeley), introduced SB 1372, a landmark bill that would help bridge the gap between rich and poor. What SB 1372 would do is raise the corporate tax on any company whose CEO makes more than 100 times the median rate of its employees, and lower the tax on any company whose CEO makes less than 100 times the median rate.
California’s corporate tax rate is currently 8.84% of a company’s net income. With passage of SB 1372, that rate could drop to as low as 7% if the company’s CEO were paid no more than 25 times as much as the average worker, but could rise to as high as 13% if the CEO were paid more 400 times the average worker. In 1965, CEOs made 20 times what the average worker made, but by 2012, that ratio was 273 to 1. What happened?
Let’s say a company’s median rate for workers is $40,000 a year. No one is asking their CEO to live on $400,000 a year, because that’s only 10 times the median rate, and that would be, well, unthinkable. What SB 1372 is asking is that this CEO consider trying to make it on $4,000,000 a year. He or she can still own the gated home, the boat and the luxury cars. The kids can still go to private schools. All they are being asked to do is piss on the average worker from a lower height.
Mind you, passage of SB 1372 wouldn’t force anyone to do anything. Hey, it’s a free country. If a company wants to overpay its CEO, it can still do so; no one is going to stop them. But overpaying them is going to entail paying more in corporate taxes, which shouldn’t be a problem, because if a company insists on paying its CEO an exorbitant salary, it can certainly afford to pay more taxes.
Of course, opponents to this bill have already presented a two-pronged argument: (1) SB 1372 amounts to a “redistribution of wealth” which would turn California into a Trotskyite/socialist/communist state, and (2) all it would succeed in doing is driving even more businesses out of the state.
As for “redistribution” of wealth,” it does nothing of the kind. The only thing SB 1372 does is offer an incentive. If you want a sizeable tax break, you need to rethink what you’re paying the Big Enchilada. If your median worker earns $40,000 a year, and you wish to take advantage of that tantalizing 7% in corporate tax, you need to pay your CEO no more than $1 million a year. It’s your choice. No one is forcing you. How is that a “redistribution of wealth”?
As for driving businesses out of California, well, that could present a messy PR problem for those who do it. When a company whose workers earn an average of $40,000 a year announces that it must leave California because it wants to continue paying its CEO $8 million a year (200 times the median), there’s going to be some blowback. One would hope that such a naked declaration of greed would give organized labor enough gas to fly to the moon.
Speaking of labor, the ratio between workers and CEOs corresponds directly to the decline in union membership. That’s because there is no mechanism on earth more effective in raising the wages of working people than labor unions. But even with the middle-class shrinking, corporations have convinced people that unions are the problem, not the solution. That has to be the greatest propaganda coup in a hundred years.