Jon Healey's Opinion L.A. post "California Democrats seek to lower CEO pay" paints our bill to address the growing disparity between chief executive and worker pay (SB 1372) as a job-killing measure that will drive business out of California and hurt our economy.
We could not disagree more. The current disparity between CEO and worker pay threatens our economy, and it threatens our democracy.
The idea that subjecting companies with extremely high CEO-average worker wage gaps to slightly higher taxes will make them decide to no longer do business in California is misguided. Our state is the world's eighth-largest economy. It is a huge market and remains the hub of technological and entrepreneurial innovation.
SB 1372 is about recognizing that the true engine of our economy is the middle class. Virtually all of the economic gains of the last several decades have gone to the very few at the top, while many working families continue to struggle. Our bill seeks to incentivize responsible corporate behavior and begin to reverse that trend.
Under SB 1372, companies with massive pay disparities between CEO and worker pay would see moderate increases in their corporate tax rate. The bill begins to raise the corporate tax rate on companies that pay the CEO 100 times more than the median worker. A CEO would have to make 300 to 400 times more than the median worker for a company to see a 3% increase in the corporate tax rate.
It should be noted that this bill is also an incentive. Companies with CEOs that make less than 100 times more than the median worker will receive a cut in their tax rate. A company could still pay its CEO 99 times more than the median worker, and its tax rate would decrease from 8.84% to 8%.
CEO compensation has not always been so excessive. Until the 1980s, corporate CEOs were paid an average of 30 times what their typical worker was paid. It is only in the last few decades that CEO compensation has skyrocketed, while worker pay has been largely stagnant. According to the AFL-CIO's Executive Pay watch, in 2012, the CEO of an S&P 500 Index company received an average compensation of 354 times more than the median U.S. worker.
When CEO pay increases exponentially at the expense of average workers, our economy suffers. Many underpaid employees at large corporations are forced to take public assistance to meet basic needs. In effect, all of us as taxpayers are subsidizing the exorbitant executive pay of a very few. Nobody wins when public assistance rolls swell and workers are unable to put any of their income back into the local economy.
It is important for our economic recovery that workers have money in their pockets to buy the things our economy produces. Increasing the purchasing power of the working and middle class will do far more to grow our economy than continuing CEOs' lavish pay. Giving companies an incentive to create greater balance between CEO and worker pay will stimulate our economy and help restore a robust middle class.