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Public Citizen Applauds Van Hollen’s CEO Tax Subsidy Reform

Jan. 28, 2015

Public Citizen Applauds Van Hollen’s CEO Tax Subsidy Reform

Statement of Bartlett Naylor, Financial Policy Advocate, Public Citizen’s Congress Watch Division

Public Citizen applauds legislation introduced today by U.S. Rep. Chris Van Hollen (D-Md.) that reforms tax subsidies granted to companies with highly paid CEOs and other senior officials.

The legislation would strengthen a 1990s law that prohibits companies from deducting as a business expense the pay above $1 million to top brass. Under current law, this amount above $1 million can be deducted if it is based on “performance,” a definition approved by shareholders. The Van Hollen bill would allow the deduction only if rank-and-file workers at the firm are given a raise in excess of the rise in inflation and productivity growth added together.

American workers are the engine of the American economy, yet in the past few decades, positive economic news has primarily meant wage increases exclusively for the corporate elite. American workers shouldn’t suffer the further burden of providing government subsidies for this wealth transfer. Every dollar that a corporation doesn’t pay because its CEO pay can be deducted from its tax bill is a dollar that average workers must pay.

As recently as 1980, the average CEO was paid 50 times what the average worker at the firm earned. That ratio is now more than 300-to-1. Management guru Peter Drucker says the gap should never be more than 20-to-1. CEOs and senior executives essentially control their own paychecks. The Van Hollen measure would help bridle senior executives who shortchange workers to fatten their own wallets.