Bernie Sanders’ New Tax Targets High CEO Pay

Bernie Sanders’ New Tax Targets High CEO Pay

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Tuesday, October 1, 2019

Bernie Sanders’ New Inequality Tax Targets High CEO Pay

Bernie Sanders released a plan Monday that would penalize companies that pay their CEOs far more than their average workers. The proposal is designed to combat rising income inequality, Sanders said in a statement, and to pressure American companies that provide lavish compensation for their chief executives while paying low wages to workers.

“You have CEOs making 500 or 1,000 times more than the median income worker — that’s a signal of a lot of what is wrong in this country,” Sanders told Jeff Stein of The Washington Post. “We want to make clear that’s bad policy, and we will impose taxes on the most egregious examples.”

How it would work: All public and private companies with annual revenues of more than $100 million would face higher tax rates if they pay their CEOs more than 50 times the median salary of their workers. The increase in a company’s tax rate would be based on the ratio of CEO to median worker pay, with the tax rate increasing at the ratio increases:

  • For companies with a CEO pay ratio between 50 and 100, add 0.5% to its tax rate
  • between 100 and 200, add 1%
  • between 200 and 300, add 2%
  • between 300 and 400, add 3%
  • between 400 and 500, add 4%
  • more than 500, add 5%.

How much money it would raise: The tax would raise about $150 billion over 10 years, according to the Sanders campaign, assuming that CEO pay levels continued at current levels over that period. The proposal gives some examples of how the tax would have affected some major U.S. firms had it been in effect last year:

  • McDonald’s would have paid up to $110.9 million more in taxes.
  • Walmart would have paid up to $793.8 million more in taxes.
  • JPMorgan Chase would have paid up to $991.6 million more in taxes.

Where the money would go: Revenues from the tax would help fund Sanders’ proposed plan to pay off all medical debt. But the proposal isn’t just designed to raise revenues, Sanders said. In addition, it is intended “to send a message to corporate America: stop paying your workers inadequate wages while CEOs make outrageous compensation packages.”

What critics are saying: As expected, the proposal is producing very different reactions on the left and the right. Brian Riedl of the conservative Manhattan Institute said the tax would hurt some industries, falling more heavily on firms that have many low-wage workers while allowing companies with a smaller number of high-wage workers, such as those in Silicon Valley, to escape. “I trust the market to set salaries more than I trust Bernie Sanders,” Riedl told the Post.

Sarah Anderson, who works on inequality at the liberal Institute for Policy Studies and who previously worked with Sanders on a similar plan, compared Sanders’ proposal to a sin tax. “You are hoping to reduce harmful behavior,” Anderson told Vox. “We see these gaps as harmful to society at large...but we think that it’s likely that some companies are so wedded to this idea that they have to pay their CEOs 100 times more than their workers — then they have to pay more in taxes.”

Rising Income Inequality Is a Fiscal Risk: Moody’s

Income inequality in the United States last year reached the highest level since the Census Bureau started tracking it more than 50 years ago, even as median household income also reached a nominal new high. And in a new report, the analysts at Moody’s Investors Service, a credit-rating agency, warn that, if not addressed, the growing gap between the country’s rich and poor could come with heightened fiscal risks.

“Rising age-related entitlement spending, higher debt service payments, increased discretionary spending and revenue loss from tax cuts are contributing to wider fiscal deficits and pushing the federal debt and interest burdens to historic levels,” Moody’s says. Rising income inequality makes it harder to address that fiscal outlook:

“Tax increases, major entitlement reform, or unprecedented cuts to discretionary spending would be required to address these intensifying fiscal challenges, policies that are made more politically difficult to implement in the context of rising inequality. Should labor incomes remain stagnant in real terms for large segments of the population, intensified polarization in incomes is likely to boost popular support for redistribution. Therefore, rising inequality is likely to impede an effective policy response because political pressure will grow from lower-income households for increased government support.”
“Conversely, politically empowered high-income earners will likely resist higher, more progressive taxation. Greater large-donor funding for candidates and policies opposed to such initiatives would likely follow. We consider deficit-financed expansion of social programs as the probable outcome in such a scenario.”

Judge Rejects State Challenge to SALT Limit

A lawsuit by four states challenging the Tax Cuts and Jobs Act’s cap on state and local tax deductions was dismissed Monday by a federal judge. The states — New York, New Jersey, Connecticut and Maryland — claimed that the $10,000 limit on the so-called SALT deduction was unconstitutional and designed to force them to change their own tax policies.

“There is no doubt in my mind that President Trump's unfair tax policy targets New York and other blue states by funding tax cuts for corporations and the rich on the backs of New Yorkers," New York Gov. Andrew Cuomo said. “New York is already the largest 'donor state' in the nation — paying the federal government $36 billion more than we get back every year. The SALT cap takes this gross imbalance and supercharges it, costing New Yorkers another $15 billion each year.”

U.S. District Judge J. Paul Oetken disagreed with the legal claim. “The court recognizes that the SALT cap is in many ways a novelty,” he wrote in his decision. “But the states have failed to persuade the court that this novelty alone establishes that the SALT cap exceeds Congress’s broad tax power under Article I, section 8 and the Sixteenth Amendment.”

Americans Really Like Most Major Federal Agencies — Except One

The American public’s trust in the federal government is at a historically low level, with just 17% of adults telling pollsters earlier this year that they trust the government to do what is right almost always or most of the time. But Americans continue to have generally favorable views of most major federal agencies — and overwhelmingly positive views of several, according to a new survey by the Pew Research Center.

Of the 16 agencies in Pew’s survey, the one viewed most favorably might surprise you. It’s the U.S. Postal Service, which is seen positively by 90% of survey respondents. The National Park Service, NASA the Centers for Disease Control and Prevention and the FBI also rate very well in terms of public perception. Even the Internal Revenue Service is viewed more favorably than unfavorably by a margin of 55% to 40%.

Only one agency is viewed more unfavorably than favorably: Immigration and Customs Enforcement. Attitudes about the agency are divided along predictably partisan lines, with 70% of Republicans and Republican-leaning independents viewing it positively compared to just 19% of Democrats and Democratic-leaning respondents.

Views on the Department of Education are split evenly, with 48% seeing it favorably and unfavorably.

The Pew poll also finds that Americans remain narrowly divided over their preferred size of government.

The Pew poll of 2,004 adults was conducted September 5-16. It has a margin of error of plus or minus 2.6 percentage points.

Quote of the Day

“The base erosion anti-abuse tax (BEAT) is well-intentioned. It is meant to be another deterrent to profit shifting. In practice it is atrocity.”

– Martin Sullivan, chief economist at Tax Notes, in a review of the Tax Cuts and Jobs Act published Monday at the American Enterprise Institute. Sullivan says the new BEAT provision, designed to prevent U.S. multinational firms from shifting profits overseas and thereby eroding the U.S. tax base, is too complex and beyond repair by Congress. “It needs to go,” Sullivan writes.

Happy fiscal new year, and a happy Jewish new year, too. Also, the baseball postseason is upon us. Can anybody beat the Astros? Send your World Series picks and general feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please encourage your friends to sign up here for their own copy of this newsletter.

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