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Inequality

The Income Equity Act: Another Try!

Blogging Our Great Divide
March 04, 2015

by Sam Pizzigati

Should America’s taxpayers be subsidizing all those millions in compensation that CEOs are collecting? At least some members of Congress don’t think so.

Nearly a quarter-century ago, in 1991, a member of Congress angry about spiraling corporate CEO compensation introduced legislation he hoped would end that spiral — and help raise stagnant American worker wages.

That legislative proposal from Rep. Martin Sabo, a veteran Minnesota Democrat, would have denied corporations tax deductions on any CEO pay that runs over 25 times what their lowest-paid workers were making.

Sabo’s bill — the Income Equity Act — would gain co-sponsors over the years, but never any legislative traction. The result? Inequality in America’s workplaces only continued to get worse. By 2006, the year Sabo retired, the gap between CEO and worker pay had quadrupled the 1991 divide.

Worker wages, meanwhile, were still stagnating.

Sabo’s bill, fortunately, did not die. Rep. Barbara Lee from California has been fine-tuning and reintroducing the Income Equity Act ever since 2007. Her latest version of the legislation — the Income Equity Act of 2015 — has just been dropped into the congressional hopper.

Rep. Barbara's Income Equity Act would, if enacted, deny corporations tax deductions on excessive CEO compensation.

Rep. Barbara’s Income Equity Act denies corporations income tax deductions on excessive CEO compensation.

The new version takes direct aim, as all the recent versions have, at a huge loophole in current tax law. Corporations cannot deduct off their taxes any more than $1 million in compensation per executive. But this limit doesn’t apply to anything labeled “performance-based” pay.

Top corporate execs today, not surprisingly, get the bulk of their compensation in stock options and other forms of “performance-based” pay.

Rep. Lee’s new Income Equity Act sets a deductibility cap for all forms of executive pay. Under her legislation, corporations can’t deduct anything over $500,000 or 25 times a company’s median worker compensation.

The Dodd-Frank Act enacted in 2010 already requires all publicly traded corporations to annually disclose this median worker pay figure — as well as the ratio between the median and each corporation’s CEO compensation. But this mandate hasn’t gone into effect yet. The federal Securities and Exchange Commission still hasn’t released the regulations needed to enforce it.

Those regulations, the SEC promises, will be coming sometime this year. Rep. Lee’s Income Equity Act, if enacted, would be the first legislation to tie consequences to the Dodd-Frank corporate pay disclosure mandate.

Rep. Lee’s bill has, of course, no chance of passage in the current Congress. But the legislation points one key way forward in the struggle against income inequality.

“Surely we can agree,” as Rep. Lee puts it, “that corporations don’t need taxpayers to subsidize massive CEO pay — pay that’s grown nearly 1,000 percent since 1978.”

If pay for average American workers had increased as fast as CEO pay since 1978, the California lawmaker adds, those average workers would now be earning $480,460 a year.

Sam Pizzigati, an Institute for Policy Studies associate fellow, edits the inequality monthly Too Much. His latest book: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class.

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Inequality,
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