Oct 05, 2020
CEOs did not cause the pandemic. But they deserve a good deal of the blame for a model that shoveled profits up the corporate ladder, leaving lower-level employees financially insecure. When Covid-19 struck, it didn't take much to push millions of vulnerable workers over the edge.
If we want to not only survive the pandemic but emerge as a nation more resilient to future crises, we need to reverse these obscenely unfair pay practices.
On November 3, San Francisco voters will have a chance to take a significant step in that direction.
The city's Board of Supervisors has placed a measure on the ballot, Proposition L, which would increase taxes on corporations with extreme gaps between CEO and worker pay.
Specifically, the proposal would increase tax rates on local business revenue, ranging from an additional 0.1 percent on corporations that pay their CEO more than 100 times their typical San Francisco worker pay to 0.6 percent for companies with pay ratios of 600 to 1 or more.
To get a sense of the potential impact on specific companies, consider McDonald's. Last year, CEO Stephen Easterbrook made $17.4 million before stepping down in November. That's about 522 times as much as one of the fast food giant's crew members would make earning San Francisco's $16.07 minimum wage on an annual, full-time basis.
Unless McDonald's makes big changes to its pay practices, these numbers suggest the company would pay a tax increase on the higher end of the proposed range, as a percentage of sales from their 16 or so San Francisco restaurants.
The benefits of the ballot measure are twofold. It would encourage corporations to narrow their pay gaps while generating revenue for programs to reduce poverty and inequality. City officials estimate the tax would raise $140 million per year.
If San Francisco voters approve the plan, the city would be the second in the nation to adopt a tax on large CEO-worker pay gaps. The first was Portland, Oregon.
Inequality.org co-editor Sarah Anderson speaks about the proposed Overpaid Executive Gross Receipts Tax on "Civic," a podcast of the San Francisco Public Press.
For the tax design nerds out there, let me point out some differences between the San Francisco proposal and the Portland tax:
- The Portland measure uses CEO-worker pay ratio data large publicly held corporations already have to report to the Securities and Exchange Commission. Under the San Francisco model, companies would need to make some additional calculations.
- Under the SEC regulation, companies base their median worker pay figure on their global workforce and they may not convert the compensation going to part-time employees to full-time equivalents.
- Under the San Francisco plan, median worker pay is based on employees working in the city of San Francisco and the companies can convert part-time wages into full-time equivalents. (This will narrow the pay ratios at companies that rely heavily on part-time employees)
- Because Portland uses SEC data, the tax applies only to publicly held corporations, whereas the San Francisco reform covers all companies (except small businesses with less than $1 million in sales), regardless of their ownership structure.
- Due to differences in local business tax structures, the base of the two cities' tax differs. In Portland, the surcharge is on a local business profits tax. For most companies in San Francisco, the increase would apply to the city's existing gross receipts tax. The exception is for operations that are mostly engaged in administrative or management services and thus don't have significant local sales. If these companies have more than 1,000 employees and more than $1 billion in annual sales nationwide, they would be subject to a tax increase based on the size of their local payroll.
All these technicalities aside, both models advance the movement to reverse inequality in ways that should give a strong boost to other efforts. Lawmakers have introducedsimilar billsin at least eight state legislatures, including California, as well as in the U.S. Senate and House of Representatives.
In the midst of the pandemic crisis, the argument for such taxes is even stronger.
"We believe that big corporations that can afford to pay their executives million-dollar salaries every year can afford to pay their fair share in taxes to help us recover," wrote San Francisco Supervisor Matt Haney in a statement supporting Proposition L. Revenue from the tax, he pointed out, would allow the city to hire hundreds of nurses, doctors, first responders, and essential health care workers.
Of course Proposition L also has its detractors. Republican Richie Greenberg, who ran an unsuccessful race for San Francisco mayor in 2018, issued a statement claiming the tax would serve no purpose because "Employees' salaries are based on experience and value to a company."
That tired argument should've been dead after the 2008 financial crisis, when financial executives chasing massive bonuses drove our economy off a cliff.
It should be even deader now, as CEOs continue to pocket fat paychecks in a recession while essential frontlines workers show us every day just how undervalued they've long been.
When the smoke from California's fires and the fog from all the election chaos lift, San Francisco may shine a new light towards a more equitable future.
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