Sanders Proposes Progressive “Income Inequality” Corporate Tax Based on Pay Ratios

October 04, 2019

Democratic presidential candidate Sen. Bernie Sanders (I-VT) unveiled an “income inequality plan” that would impose tax hikes on all public and private companies—up to 5%—based on the company’s pay ratio.

“Workers in this country should not be paid totally inadequate wages while CEOs make outrageously high compensation packages,” stated Sen. Sanders in announcing his plan.

The plan would apply to both private and public companies with more than $100 million in annual revenue, would make private company pay ratios a public disclosure “in the same manner that it is currently disclosed for [public companies]," and would require the Treasury Department to “issue regulations to prevent tax avoidance, including by changing the composition of a firm’s workforce.”

Portland precedent:  The blueprints for Sen. Sanders’ income inequality plan have been seen previously in Portland, Oregon—where the city council implemented a progressive pay ratio tax that raises taxes for companies with high pay ratios.  A similar bill has been introduced in California.  Like those bills, the proposal would increase the corporate tax rate for companies with pay ratios on the following scale.

  • Between 50 and 100: +0.5%
  • Between 100 and 200: +1%
  • Between 200 and 300: +2%
  • Between 300 and 400: +3%
  • Between 400 and 500: +4%
  • Higher than 500: +5%

Contrasts with Sen. Elizabeth Warren’s (D-MA) governance-focused approach:  Sen. Sanders’ progressive rival for the Democratic nomination has introduced her own approach aimed at curbing executive pay.  Sen. Warren’s approach focuses on preventing executive stock sales and limiting share buyback programs while also requiring workers to hold 40% of board seats.

Income inequality set to grow as campaign theme:  With some economic indicators and pundits flashing warning signs of a recession, the issue of executive pay—and income inequality—will serve as a steady campaign theme, with more legislative proposals sure to follow.