U.S. Markets closed

Bernie Sanders’ New Inequality Tax Targets High CEO Pay

Michael Rainey

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.”

Like what you're reading? Sign up for our free newsletter.