10 Steps to Break Up the Wealth of the Super Rich
Continued from previous page
An effective policy would limit the deductibility of excessive compensation. The Income-Equity Act (HR 382) would deny all firms tax deductions on any executive pay that runs over twenty-five times the pay of the firm’s lowest-paid employee or $500,000, whichever is higher. Companies can pay whatever they want, but over a certain amount, taxpayers shouldn’t have to subsidize it. Such deductibility caps were applied to financial bailout recipient firms and will be applied to health insurance companies under the health care reform legislation.
• Encourage reasonable limits on total compensation. The greater the annual reward an executive can receive, the greater the temptation to make reckless executive decisions that generate short-term earnings at the expense of long-term corporate health. Outsized CEO paychecks have also become a major drain on corporate revenues, amounting, in one recent period, to nearly 10 percent of total corporate earnings. Government can encourage more reasonable compensation levels without having to micromanage pay levels at individual firms.
An effective policy would raise top marginal tax rates. As discussed earlier, taxing high incomes at higher rates might be the most effective way to deflate bloated pay levels. In the 1950s and 1960s, compensation stayed within more reasonable bounds, in part because of the progressive tax system.
• Force accountability to shareholders. On paper, the corporate boards that determine executive pay levels must answer to shareholders. In practice, shareholders have had virtually no say in corporate executive pay decisions. Recent reforms have made some progress toward forcing corporate boards to defend before shareholders the rewards they extend to corporate officials.
An effective policy would give shareholders a binding voice on compensation packages. The Dodd-Frank reform includes a provision for a nonbinding resolution on compensation and retirement packages.
• Accountability to broader stakeholders. Executive pay practices, we have learned from the run-up to the 2008 financial crisis, impact far more than just shareholders. Effective pay reforms need to encourage management decisions that take into account the interests of all corporate stakeholders, not just shareholders but also consumers, employees, and the communities where corporations operate.
An effective policy would ensure wider disclosure by government contractors. If a company is doing business with the government, it should be held to a higher standard of disclosure. Taxpayers, workers, and consumers should know the extent to which our tax dollars subsidize top management pay. One policy change would be to pass the Patriot Corporations Act to extend tax incentives and federal contracting preferences to companies that meet good-behavior benchmarks that include not compensating any executive at more than 100 times the income of the company’s lowest-paid worker.
Stop corporate tax dodging.There are hundreds of large transnational corporations that pay no or very low corporate income taxes. These include Verizon, General Electric, Boeing, and Amazon. A common gimmick of the corporate 1 percent is to shift profits to subsidiaries in low-tax or no-tax countries such as the Cayman Islands. They pretend corporate profits pile up offshore while their losses accrue in the United States, reducing or eliminating their company’s obligation to Uncle Sam.
These same companies, however, use our public infrastructure—they hire workers trained in our schools, they depend on the U.S. court system to protect their property, and our military defends their assets around the world—yet they’re not paying their share of the bill. In a time of war, the unequal sacrifice and tax shenanigans of these companies are even more unseemly.
Corporate tax dodging hurts Main Street businesses, the 99 percent that are forced to compete on a playing field that isn’t level. “Small businesses are the lifeblood of local economies,” said Frank Knapp, CEO of the South Carolina Small Business Chamber of Commerce. “We pay our fair share of taxes and generate most of the new jobs. Why should we be subsidizing U.S. transnationals that use offshore tax havens to avoid paying taxes?”