While Sanders may be still be on the left of the Democratic Party, the economic proposals this campaign is producing show how much the conversation around the economy has changed among Democrats, even those who are ostensibly more moderate.
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.
So if the median employee makes $40,000 a year and the CEO makes more than $2 million a year, the corporation would have to pay a higher tax rate.
I’m a bit skeptical about this as a policy solution, since it seems more likely that if it were in place a company would find ways to reduce its chief executive’s pay to avoid the tax rather than raising the pay of employees, which ought to be the primary goal.
But there’s no question that the gap between CEO pay and workers’ pay is obscene. In 2018, according to the Economic Policy Institute, the ratio of CEO to median worker’s pay at top corporations last year was a remarkable 278 to 1 (or 221 to 1 depending on which measure you use to account for stock options). At some large corporations, the ratio is over 1,000 to 1. Over the past 40 years, while worker pay has only grown by 12 percent in inflation-adjusted terms, CEO pay has grown by more than 1,000 percent.
Sanders’s approach to this problem is a kind of outside-in one: Tell the companies they’ll be punished if the outcome of their pay reflects this glaring inequality, and then let them figure out how to fix it.
Warren, in contrast, has a proposal that is in many ways more fundamental. She would mandate that large corporations serve the interests of all stakeholders (including their workers and the communities where they’re located), not just their shareholders. And she would require that 40 percent of the seats on corporate boards be filled by people elected by employees. “Codetermination” systems are in place in other countries, most notably Germany, where they seem to produce less short-term thinking (and lower CEO pay) without sacrificing economic success.
But what’s striking about these kind of proposals is that they’re intended to question some of the basic premises on which our economic system has been operating for decades — and that’s now mainstream thinking in the Democratic Party. Even Joe Biden, who’s running as a moderate, is considering proposing a financial transactions tax on Wall Street, which used to be something advocated only by progressives like Warren and Sanders.
To see what an extraordinary change this is, let’s recall the tax policies of the two most recent Democratic presidents. In 1993, Bill Clinton passed a budget that included, among other things, an increase in the top income tax rate from 31 percent to 39.6 percent. At the time, Republicans predicted that this would immediately plunge the United States into an outright economic cataclysm. Of course, the opposite happened: We experienced a dramatic boom, just one of the many times that reality has proved Republicans’ economic predictions to be 180 degrees wrong.
But the point is that even though it raised plenty of revenue and helped lead to a balanced budget, Clinton’s tax increase was relatively modest. Just seven years before, the top rate had been 50 percent.
Then after George W. Bush cut the top rate to 35 percent, Barack Obama eventually negotiated a deal whereby the Bush cuts would be retained for all but the wealthiest, bringing the top rate back to 39.6 percent — an even smaller increase than Clinton’s. In 2016, Hillary Clinton offered an intricate tax proposal that would have raised taxes on the top 1 percent of earners by about 5 percent.
So while Democrats have wanted to raise taxes on the wealthy pretty much since they were dramatically lowered under Ronald Reagan, up until now the ideas have been mostly about tweaking things around the edges. While it’s not inaccurate to say the party has “moved left” in the time since, what has really happened is that Democrats have decided that it’s politically safe to advocate for things that they probably supported years ago but worried wouldn’t fly with the electorate.
And they still might not. But with inequality at unprecedented levels and polls consistently showing that wide majorities of Americans believe the biggest problem with the tax system is that corporations and wealthy people get away without paying their fair share, the last thing Republicans probably want is to have an argument about whether we should be tougher on corporations and the wealthy.
But that is indeed the argument we’re going to have in 2020.