The Washington PostDemocracy Dies in Darkness

Bernie Sanders pushes new tax targeting large companies where CEOs earn far more than workers

Sen. Bernie Sanders (I-Vt.), a Democratic presidential candidate, speaks on Sept. 21 at the Polk County Democrats Steak Fry in Des Moines. (Nati Harnik/AP)

Sen. Bernie Sanders (I-Vt.) unveiled 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’s plan, the government would increase a firm’s corporate tax rate if its highest-paid employee earns more than 50 times what its average worker does — an attempt to encourage companies to distribute their profits more equitably.

The plan would apply only to companies with more than $100 million in annual revenue.

Biden advisers weigh new Wall Street tax as Warren, Sanders pitch aggressive levies on wealthy

“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 said in an interview Sunday night. “We want to make clear that’s bad policy, and we will impose taxes on the most egregious examples.”

Sanders’s plan comes a week after he introduced a “wealth tax” that aims to halve the wealth held by billionaires in the United States. That proposal dramatically expanded on a similar plan from Sen. Elizabeth Warren (D-Mass.) earlier this year to tax the wealth of Americans who have more than $50 million in assets. Advisers to former vice president Joe Biden have studied the possibility of instituting a tax on certain Wall Street transactions. Many of the ideas are still in development.

President Trump passed a sweeping tax-cut plan in 2017 that was opposed by Democrats. White House officials and many Republicans have said those tax cuts helped grow the economy last year, but many Democrats have said the plan disproportionately helped the wealthy and large businesses and added more than $1 trillion to the debt. A number of Democratic candidates have said they plan to repeal all or parts of that tax cut if they are elected president, and they are in the process of outlining their own tax proposals.

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 their party’s general drift left on economic policy.

The tax plan would be used to fund Sanders’s proposal to eliminate Americans’ medical debt.

Critics say Sanders’s plan would probably hurt companies with a large number of low-wage workers by forcing them to hire less talented CEOs, reducing the overall competitiveness of U.S. firms. Brian Riedl, a budget expert at the Manhattan Institute, a conservative think tank, said such a tax could dramatically affect industries such as fast food and 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 E. Pomerleau, chief economist at the conservative-leaning Tax Foundation, 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 as independent contractors. The plan also directs the Treasury Department to create regulations to prevent firms from circumventing the new tax.

Supporters point to polling that suggests people on both sides of the political spectrum are infuriated by the current gaps in worker and CEO pay. In the 1950s, CEOs made only 20 times as much as the median employee. Today, the average S&P 500 CEO receives 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.

Sanders’s plan has no chance of passing right now, given Republican control of the White House and Senate.

Under his plan, companies would be hit with a higher corporate tax rate if their CEO (or highest-paid employee) makes more than 50 times the pay of the median worker. That tax penalty would start at 0.5 percentage points and increase gradually. Companies at which the ratio is 500 to 1 would see their corporate tax rate jump five percentage points.