Published on: September 10, 2021
Topics: Executive Pay Plan DesignDemocratic leaders in Congress have circulated a document with various policy ideas to increase revenue in the reconciliation bill, including an increase in a company’s corporate tax rate if the ratio of the CEO’s pay to the average employee's pay exceeds certain levels.
The idea is in a conceptual stage and has not yet been formally included in the reconciliation package. According to a CNBC article, the idea was included on a discussion list for consideration before approaching the House or Senate. Such a list may be circulated to gauge support for particular provisions prior to including them in formal legislation.
The triggering level of CEO pay ratio is yet to be determined. One possibility is that the ratio triggering tax would match those in the Tax Excessive CEO Pay Act, a proposal introduced by Senator Bernie Sanders (I-VT). Senator Sanders’ bill would increase the corporate tax rate from 21% to 26% based on the CEO pay ratio on the following schedule (please note, this IS NOT currently included in draft reconciliation bill text):
- Ratio of 50 to 100 = 0.5% increase in the corporate tax rate
- 100 to 200 = 1% increase
- 200 to 300 = 2% increase
- 300 to 400 = 3% increase
- 400 to 500 = 4% increase
- More than 500 = 5% increase
Share buybacks and other increases are also on the list. Other potential sources of revenue include taxes on share buybacks above a “significant” level, carbon taxes, eliminating tax subsidies for fossil fuels, and closing the so-called carried interest loophole.
Outlook: Some municipalities such as San Francisco and Portland have implemented a surcharge tax based on the CEO pay ratio, but Sen. Sanders’ proposed tax has not received widespread adoption or support from Democratic leadership. Instead, increasing pay for lower-income employees rather than punishing high earners has gained much more support. The package must maintain the support of every Democratic Senator, including moderates Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ), who have both expressed skepticism about more progressive efforts to increase revenue.