Reconciling Big Pay

By Bartlett Naylor

In his American Rescue Plan, President Biden proposes establishing a new minimum wage of $15 an hour. That’s an important recognition that addressing the acute economic problems brought on by the pandemic cannot ignore chronic income and wealth inequalities that have punished average workers for decades.

As Congress considers ambitious measures to bring urgent relief to struggling Americans, we must not miss what may be a fleeting political opportunity to establish a strong, equitable framework for the future workforce. The President, his advisors and key Congressional leaders pledge to “go big” with the mandate American voters delivered in the recent election. With special budget reconciliation rules allowing 50 senators to move important revenue-related legislation rather than being stymied by the filibuster, now is the time.

Since the 1970s, corporations have failed to compensate American workers in line with their increased productivity–meaning there has been a greater value of goods and services produced with each hour labored. Where did the fruits of this labor go? It’s been siphoned toward the income of senior managers and to issue dividends for those holding stock or other means of ownership in firms. The top 1 percent of earners accounted for 8 percent of total income in 1973. Now, this figure is closer to 20 percent. The bottom 50 percent of earners—half of all individuals—account for only about 12 percent of total income. American income has never been egalitarian, but these percentages have now flipped since 1970, when the bottom 50 percent received 21 percent of total income, the share now commandeered by the 1 percent.

And the pandemic hasn’t scathed the elite: The nation’s 650 billionaires added more than $1 trillion to their collective wallets since the onset of the pandemic.

Raising the minimum wage will begin to help repair this inequity. Already, more than 2 percent of Americans make the legal minimum or less. More than 20 percent of the workforce makes less than $15 an hour. Raising the minimum wage will also help address racial inequality, as nearly half of all Black and Latino workers make less than $15 an hour.

Congress and the White House’s ambitions should not end with this reform. Bold, structural change should be instituted to plug the drain of worker compensation into the C-suite.

At a minimum, Americans should not subsidize excessive compensation. Already, in one of its only bright spots, the Trump corporate tax bill eliminated the deduction for performance-based pay beyond $1 million for the five senior executives at publicly traded companies. With his Stop Subsidizing Multimillion Dollar Corporate Bonus Act, Sen. Jack Reed (D-R.I.) leads a measure to expand this to all employees paid more than $1 million. (And, the companies covered in Sen. Reed’s bill include those whose ownership isn’t necessarily traded on a stock exchange.) In the last Congress, this bill enjoyed seven co-sponsors, including three now on the tax-writing Senate Finance Committee.

More ambitiously, Congress should encourage corporations to share the revenue workers generate more equitably. A bill led by Sen. Bernie Sanders (I-Vt.) called the Tax Excessive CEO Pay Act raises a corporation’s total tax rate when the CEO’s pay reaches certain multiples of the median pay at the firm. Boards set the CEO’s pay with shareholder approval, and ideally, none will want to pay higher corporate tax rates. Bridling the CEO’s pay should also trim the pay for the entire C-suite, leaving money to better compensate the overall workforce. “The bill incentivizes corporations to narrow their gaps by lifting up the bottom — and bringing down the top — of their pay scales,” explains Rep. Rashida Tlaib (D-Mich.) a co-sponsor of the House version of the bill.

Sen. Elizabeth Warren (D-Mass.) co-sponsored this bill in the previous Congress. As a new member of the Senate Finance Committee, she’s well placed to promote this measure. In the House, Rep. Barbara Lee (D-Ca.) joined Tlaib along with a combined 18 co-sponsors In the last Congress

Outside Washington, other lawmakers have pursued this reform. Lawmakers in eight states have introduced legislation similar to the Sanders-Lee-Tlaib bill.  The city of Portland adopted a surtax on firms operating there with extreme pay gaps between the CEO and workers. In November 2020, San Franciscans voted 65-35, to approve a proposition to adopt a similar tax. Seattle approved a surtax on companies calculated on employees making high pay.

These tax-related reforms can be adopted through the budget reconciliation process, which applies to revenue-raising measures, and requires only a majority vote in the Senate. And it will not be difficult to win the attention of the pivotal Senate Budget Committee as Sen. Sanders chairs it.

Congress should also consider other measures that can help restore income equality, which Public Citizen explored in a report. For example, former CEO and corporate board veteran Steven Clifford proposes a 100% tax on any pay beyond $6 million.

As our lawmakers rescue our economy, they must understand that the need to compensate average workers fairly didn’t begin with the pandemic. We cannot surrender to a return to “normal” that means the 1 percent make about twice as much as 50 percent of the population.