Sen. Bernie Sanders, I-Vermont, is unveiling a plan on Monday that would dramatically increase taxes on corporations that pay their CEOs far more than their workers, adding to the growing suite of policy proposals to expand taxes in the Democratic presidential race.
Under Sanders’ plan, the government would increase a firm’s corporate tax rate if its highest-paid employee earns more than 50 times that of its average worker — an attempt to encourage companies to distribute their profits more equally.
The plan would only apply to companies with more than $100 million in annual revenue.
Sanders’ plan comes the week after he introduced a new “wealth tax” that aims to halve the wealth held by billionaires in the U.S. That proposal mirrored a similar plan from Sen. Elizabeth Warren, D-Massachusetts, earlier this year to tax the wealth of Americans with more than $50 million in assets. Aides to former vice president Joe Biden, meanwhile, have studied the possibility of instituting a tax on certain Wall Street transactions. Many of the ideas are still in development.
Over the course of the campaign, the Democratic presidential candidates have pitched a number of new tax ideas — ranging from far higher rates on the highest earners to a more robust estate tax — reflecting the party’s general drift left on economic policy.
“The tax will discourage the runaway CEO pay that has been one of the key drivers of our country’s extreme inequality,” the Sanders campaign said in a statement, adding it will also reduce the “outrageous levels of compensation” that encourage corporations to take unnecessary risks.
Critics say Sanders’ plan would likely hurt companies with a large number of low-wage workers by forcing them to hire less talented CEO’s, reducing the overall competitiveness of U.S. firms. Brian Riedl, a budget expert at the conservative think-tank the Manhattan Institute, said such a tax could dramatically affect industries like fast food or retail that naturally pay lower wages, while leaving others — such as Silicon Valley — relatively unscathed.
“I trust the market to set salaries more than I trust Bernie Sanders,” Riedl said.
Kyle Pomerleau, chief economist at the conservative-leaning Tax Foundation, also questioned whether the plan would simply force large companies to reclassify employees as independent contractors as a means of avoiding the tax.
Sanders has introduced separate legislation aimed at preventing companies from unfairly reclassifying their workers independent contractors. The plan also directs the Treasury Department to create new regulations to prevent firms from circumventing the new tax.
Supporters also point to polling suggesting that people on both sides of the political spectrum are infuriated by the current gaps in worker and CEO pay. In the 1950s, CEOs only made 20 times more than the median employee. The average S&P 500 CEO now makes 287 times the pay of their company’s median worker, the Sanders campaign said.
Nearly two-thirds of Americans, including a majority of Republicans, think there should be a maximum pay for CEOs relative to their company’s average worker, according to a 2016 Stanford Business School survey cited by Sarah Anderson, project director at the Institute for Policy Studies, a left-leaning think-tank.
“This is a really sensible way to give companies the right incentives to narrow the gaps,” said Anderson, who has been working with Democrats in the House and at the state and local level on similar policies.
The tax plan would be used to fund his proposal to eliminate Americans’ medical debt, which he introduced last month.
Sanders’ plan has no chance of passing right now given Republican control of the White House and Congress.
Under the plan, companies would be hit with a higher corporate tax rate if their CEO (or highest paid employee) makes more than 50 times the median worker. That tax penalty would start at 0.5 percentage points and increase gradually. Companies where the ratio is 500-to-1 would see their corporate tax rates jump 5 percentage points.