Sliding Scale

Congress and the president have just reduced the corporate tax rate, and CEOs from right to left think that’s wonderful.

CEOs today make about 250 times more than their average employee. Not too long ago, they “only” made 50 times more. Think about that — it’s a big problem. Growing wealth disparity fuels class resentment, because it’s basically unfair.

Are CEOs five times more productive now than in 1988? Are employees less productive? No and no. But people tell me that CEO compensation is insignificant in the “big picture.” My math says different.

Consider a company of 1,000 people. Corporations use about $250,000 per employee per year as an estimate of overhead. If the average worker makes $50,000/year, the modern-day CEO of their company gets $12.5 million. Remaining overhead, minus payroll, is $175,000.

If that company wanted to lock overhead-minus-payroll at $175,000 but pay its CEO “only” 50 times more than the average worker, what would happen? The CEO would make $3.41 million, and the average worker would get a 36.4 percent raise, from $50,000 to $68,200. That raise would fund a lot of stuff, like college, health insurance, and about 999 better lives.

If the president and Congress really wanted to do something good, they’d drop the tax rate to zero for corporations that pay their CEO 50 times (or less) than what they pay their average worker, with an upward sliding scale above that. The benefits to society, the tax base, and the economy as a whole would be significant.