The fight to increase Americans’ stagnant incomes is, at long last, growing more serious. Thursday, with the explicit backing of the House Democratic Caucus, Maryland Rep. Chris Van Hollen, the ranking Democrat on the Budget Committee, is introducing a bill that would prompt corporations to reward workers — not just top executives and major shareholders — for their gains in productivity.
Corporations currently can deduct the cost of their top executive pay in excess of $1 million when that pay is “performance-based” — that is, when CEO compensation is linked to rising share values, stock options and the like. Van Hollen’s bill would take away that deduction unless the corporation’s employees get a wage boost equal to the nation’s annual increases in productivity and the cost of living.
Time was when American workers reaped what they sowed. Between 1947 and 1972, the nation’s productivity increased by 97 percent and median pay by 95 percent. Since then, however, as the decline of unions and a host of other factors weakened employees’ bargaining power, hardly any productivity gains have gone to workers. Between 1979 and 2011, productivity rose by 75 percent, but median pay rose by just 5 percent.
Chief executives, however, managed to reward themselves quite handsomely for the gains in their workers’ productivity. From 1978 to 2013, CEO pay rose by a mind-boggling 937 percent.
Nice work if you can get it.
“We’re saying to corporations,” Van Hollen told me this week, “Look, you can pay your CEO whatever you want. Just don’t ask taxpayers to subsidize that pay if you don’t reward workers, as you reward your CEO, for their increases in productivity.” Executive pay has become so stratospheric that the tax deductions corporations took on pay in excess of $1 million, Van Hollen noted, came to $66 billion between 2007 and 2010.
The bill won’t go anywhere in the Republican-controlled House, of course, but it is nonetheless important for broadening the center-left’s efforts to combat economic inequality. Until now, most legislative attempts to raise workers’ wages have focused on raising the minimum wage. Increasing the minimum is both conceptually simple and politically popular — indeed, ballot measures to increase state minimum wages have passed in nine states since 2002, during which time no such measures have lost. But minimum-wage hikes, while a lifeline for those in low-paying jobs, do nothing for the majority of workers, whose incomes have also been either stagnating or declining.
Before 1980, such workers had enough bargaining power to win pay increases without legislative assistance. Annual cost-of-living increases and pay raises in line with the economy’s annual productivity increases were a feature of many union contracts, and non-union employers often felt compelled to match those raises lest their workers jump to better-paying companies. Today, with unions virtually vanished from the private sector, workers have no such leverage.
That’s why a bill like Van Hollen’s is necessary, and why more such legislation, at least in the bluer states, is likely to follow. Indeed, a bill to lower state corporate tax rates on companies that pay their CEOs no more than 100 times the median wage they pay their workers — and to raise them on the many companies that pay their chief executives more than that — won a plurality in the California Senate this summer, though it failed to get the required two-thirds majority.
Using corporate tax rates as a way to prod companies to pay their workers adequately will surely rouse the ire of CEOs, “activist investors” and many of those who have benefited from the redistribution of income from the middle class to the rich over the past 35 years. By backing Van Hollen’s bill, the House Democratic Caucus announces that raising Americans’ incomes is — at least provisionally — worth the risk of incurring Wall Street’s wrath. In coming years, more such measures — such as one that requires corporations to represent workers on their boards, a policy that has contributed greatly to Germany’s broadly shared prosperity — will be required if Americans’ incomes are truly to rise.
However unintentionally, Van Hollen’s bill also poses a challenge to the Democrats’ most likely 2016 presidential nominee. Hillary Clinton, the New York Times reported Saturday, “is talking about how to address income inequality without alienating corporate America.” Her party’s caucus in the House of Representatives is telling her — rightly — that it can’t be done.
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