Trump and the ‘Joke’ That Is CEO Pay

Red-state voters want action to crack down on executive excess. Trump should oblige.

Originally published in U.S. News.

On the campaign trail, Donald Trump once described our country’s stratospheric CEO pay as “a total and complete joke.” He was right about that. The idea that the guys in the corner office are worth hundreds of times more than their employees does not pass the laugh test.

He was also right when he pointed his finger at cronies on corporate boards as a big part of the problem. “The CEO puts in all his friends,” Trump said. “And they get whatever they want you know because their friends love sitting on the board. That’s the system that we have and it’s a shame and it’s disgraceful.”

[pullquote]Among Trump state voters, only 21 percent wanted to keep this perverse CEO bonus loophole.[/pullquote]

But where the president-elect is off base is in his suggestion that we can’t do anything about this disgrace. In reality, there are many ways policymakers could take responsible action to rein in executive excess. And huge numbers of Trump’s own voters want them to do so.

Shortly before the election, Lake Research Partners surveyed likely voters in four states that all wound up in Trump’s column (Florida, Pennsylvania, Missouri and Ohio) and found strong support for specific policy reforms aimed at cracking down on excessive executive pay and Wall Street greed.

For example, they asked these likely voters about a tax loophole that allows corporations to deduct unlimited sums from their federal income taxes for executive stock options and other so-called “performance pay.” This loophole essentially means that the more corporations pay their CEO, the less they pay in taxes. Among these Trump state voters, only 21 percent wanted to keep this perverse loophole. A full 67 percent said they wanted to jettison it.

Democratic Sens. Jack Reed and Richard Blumenthal introduced legislation this week that would do just that. On the House side, Rep. Lloyd Doggett has championed a companion bill that was re-introduced with 42 Democratic co-sponsors. If Congress were to pass this legislation, it would raise an estimated $5 billion per year that could be used to fund infrastructure jobs or other urgent needs.

So far no one on the other side of the aisle has come out in support of this proposal. But there is a Republican precedent: In 2014, then-House Ways and Means Chair Dave Camp, a Michigan Republican, called for the elimination of this CEO pay loophole, arguing it was time to “stop subsidies for excessive compensation.”

This particular loophole is just one of many ways our tax code has been rigged to the benefit of corporate CEOs. Another example is the double standard when it comes to tax-sheltered retirement accounts.

[pullquote]A House fix for the loophole was re-introduced with 42 co-sponsors.[/pullquote]

Ordinary American workers face strict caps on how much they can set aside each year in 401(k) accounts (up to $24,000 for older workers). But big U.S. corporations are allowed to set up unlimited tax-deferred accounts for their top executives.

A report I recently co-authored found that Fortune 500 CEOs have nearly $3 billion in such special funds, where their money can grow and grow tax-free until they withdraw it. In 2015 alone, Fortune 500 CEOs put $238 million more in these accounts than they could have if they were subject to the same rules as their workers. That saved them $92 million on their IRS bills.

There are many other practical steps leaders could take to reform our broken CEO pay system. And yet since Trump’s election victory, he’s stopped railing against executive excess. Instead, he’s nominated several men for high-level positions who are poster boys for the shamelessness he so vehemently denounced on the stump.

Labor secretary nominee Andrew Puzder has made as much as $10 million per year as the CEO of a fast food corporation. Rex Tillerson, Trump’s choice for secretary of state, has typically made more than $20 million or even $30 million every year as chief of ExxonMobil. And Wilbur Ross, who received the commerce secretary nod, has become a billionaire as the chief of a private equity fund.

In Trump’s mind, CEO pay may still be a huge joke. But his first actions suggest that overpaid executives, not ordinary Americans, will get the last laugh.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and is a co-editor of Inequality.org.