Economic inequality is out of control, and one of the biggest drivers is excessive pay to CEOs and executives. Some of America’s biggest corporations give away hundreds of millions in salary, bonuses, and other compensation to their executives while paying their workers poverty wages. Disney’s CEO Bob Iger makes 1,000 times the company’s median paid worker; Walmart’s CEO makes 1,076 times the median paid worker. Excessive compensation to corporate executives fuels income inequality, gives a few wealthy people too much power over our politics, and slants the incentives in our economy towards profits, not people. It’s also bad for business, too. Huge gaps in compensation hurt workers’ morale and bring down productivity.

The Tax Excessive CEO Pay Act starts to correct runaway inequality by making companies that give away huge payouts to CEOs while ignoring their workers pay a high price. It assesses a federal corporate tax penalty on companies that have huge gaps between CEO and median worker pay. The higher the pay gap, the higher the tax rate. It closes loopholes that companies use to misrepresent executives’ income and targets only companies making hundreds of millions in profits per year. In addition to incentivizing businesses to narrow pay gaps and increase their workers’ salaries, it also raises almost $150 billion to put towards decreasing economic inequality.

The Tax Excessive CEO Pay Act – at a glance

Bill number(s): H.R. 5066 / S. 2849

Sponsors: Rep. Barbara Lee, Rep. Rashida Tlaib | Sen. Bernie Sanders

Status: Introduced in the House and Senate

What it does:

  • The wider a company’s gap between CEO and median worker pay, the higher their federal corporate tax rate. The tax penalties would begin at 0.5 percentage points for companies that pay their top executives between 50 and 100 times more than their typical workers. The highest penalty would kick in for companies that pay top executives over 500 times worker pay.
If a company’s ratio of CEO to median worker pay is: Their corporate taxes will increase by:
More than 50 but not more than 100 +0.5%
More than 100 but not more than 200 +1%
More than 200 but not more than 300 +2%
More than 300 but not more than 400 +3%
More than 400 but not more than 500 +4%
More than 500 +5%
  • The bill covers all forms of executive compensation: salary, bonuses, the value of stock and stock option awards, change in pension value, and more.
  • The tax only applies to America’s biggest and most profitable companies – public and private corporations with average annual gross receipts for the 3 preceding years of at least $100 million.
  • The bill has multiple anti-avoidance provisions that prevent companies from outsourcing their lowest-paid workers in order to avoid the tax. It also targets the highest paid employee – not just the CEO – ensuring that companies cannot avoid paying up by shifting pay around the executive suite.
  • By taxing executive pay, the bill will raise billions to be spent on alleviating income inequality. If current corporate pay patterns continue, the tax would raise an estimated $150 billion over 10 years. If the tax had been in place in 2018, S&P 500 companies with ratios of 100 to 1 and higher (80 percent of the total) would have owed as much as $17.2 billion more in federal taxes.

Additional Resources:

“No CEO, no matter how brilliant, is any better or more important than a janitor. We need to change the way we understand and practice capitalism. We need to put people ahead of profits once and for all. If you cannot afford to pay a living wage, you cannot afford to hire a worker.”

Patriotic Millionaire Abigail Disney