SACRAMENTO — A California effort to lead a national debate over the growing wage gap between CEOs and average workers took its first step in the state Legislature on Thursday with support from Democratic lawmakers, organized labor and former U.S. Labor Secretary Robert Reich.
Reich, who served in the Clinton administration during the 1990s, said the bill would reward “responsible” companies with lower tax rates and help the middle class while countering a trend that he said endangers the underpinnings of the American economy.
SB1372 would punish companies that pay CEOs more than 100 times the median wage of their workers by imposing a higher corporate tax rate. Companies with less of a wage gap would be rewarded with a lower rate.
“The issue of widening inequality of income and wealth and opportunity and political power is one that the United States is now becoming aware of because things are getting so out of kilter,” Reich told the Senate Governance and Finance Committee.
The California Chamber of Commerce labeled the proposal as a job killer. Chamber lobbyist Jennifer Barrera told the committee the bill would discourage corporate investment in California.
It would aggravate California’s national reputation as being hostile to business while raising what already are some of the nation’s highest corporate taxes, said Gina Rodriquez, the California Taxpayers Association’s vice president for state tax policy.
The bill’s authors acknowledged that its prospects are uncertain because it requires a two-thirds supermajority to pass the Legislature and is unlikely to attract Republican votes.
But Democratic Sens. Mark DeSaulnier, of Concord, and Loni Hancock, of Berkeley, said it is important for California to lead a national conversation about narrowing the wealth disparity. DeSaulnier said it is the first such bill in any state.
According to the AFL-CIO, chief executives received an average compensation of 43 times the median U.S. worker’s pay in 1983. Today, that figure is 278 times a typical wage.
CEOs of companies in Standard & Poor’s 500 index were paid an average of 354 times more than the median employee in 2012, according to the union.
“How do you run an economy where the middle class and the poor don’t have enough money to buy everything the economy is capable of producing? That’s one of the biggest reasons why this (economic) recovery has been so anemic,” Reich said.
The tax rate, currently 8.84 percent of net income for all corporations, would scale up or down from 7 percent to 13 percent under the bill, with the highest rate reserved for companies whose CEOs are paid more than 400 times the median wage.
The bill cleared its first committee on a party-line 5-2 vote and next goes before the Appropriations Committee.
Top corporate salaries are often indeed “out of whack,” said Sen. Steve Knight, R-Palmdale, who voted against the bill. But it’s not the role of government to correct the problem, said Knight, who argued it is counterproductive to discourage entrepreneurs who build their companies.
“They are the innovation behind the business,” Knight said, “and without them we don’t have anything.”