CA Dems Seek New Corporate Tax

A new bill would hike taxes on corporations with the biggest spread in paid wages.

The legislation, Senate Bill 1372, was recently introduced by state Sens. Mark DeSaulnier, D-Concord, and Loni Hancock, D-Oakland. It passed the Senate Governance and Finance Committee late last month.

Rather than raising state corporate taxes across the board, SB1372 exaggerates California’s targeted approach to business taxation. The state already taxes financial institutions at a special, higher rate — a 10.84 percent levy on income instead of the 8.84 percent applied to other corporations. Now, DeSaulnier and Hancock want to single out corporations that pay their CEOs the most relative to the median income paid to their employees.

Instead of the flat rates currently imposed by law, SB1372 would create a complex sliding scale. The legislative counsel’s digest sums up the proposed changes in the following chart. Numbers in the left column refer to the percentage that CEO pay exceeds pay for a corporation’s median employee:

If the compensation ratio is: The applicable tax rate is:
Over zero but not over 25 7% upon the basis of net income
Over 25 but not over 50 7.5% upon the basis of net income
Over 50 but not over 100 8% upon the basis of net income
Over 100 but not over 150 9% upon the basis of net income
Over 150 but not over 200 9.5% upon the basis of net income
Over 200 but not over 250 10% upon the basis of net income
Over 250 but not over 300 11% upon the basis of net income
Over 300 but not over 400 12% upon the basis of net income
Over 400 13% upon the basis of net income

In other words, SB1372 does two things. Not only does it penalize some corporations for their pay structure — it rewards others for their own.

Critics have argued that the bill’s approach is unwise because it’s bad for business. If California is going to use tax policy to modify behavior, they say, legislators should create incentives that create jobs. As the state continues to suffer high-profile job losses, pro-business advocates in California fear that higher rates and more complicated tax interventions will discourage new business formation and relocation.

A national battle

At the same time, broader concerns persist. California Democrats targeting CEO pay are pursuing an agenda that’s integrated with a national election-year strategy focused around the so-called income inequality issue. At the federal level, that involves a synchronized push for higher minimum wages. (One California Democrat, Rep. Barbara Lee, wants a $26 an hour minimum wage.)

Labor unions, meanwhile, are playing a significant role in the campaign. The AFL-CIO, for instance, recently focused on pay disparity in its annual “Executive Paywatch” report. One prominent talking point emphasized that, for S&P 500 companies, the average profit per employee topped $41,000. The report implied that high-end CEO pay unjustifiably spends company profits on executives, not workers.

The report, however, obscures one reason for pay disparity that SB1372 also does not take into account. Profit per employee may be an important new metric in business analysis, as the influential consulting giant McKinsey has pointed out. Understanding CEO pay scales, however, requires a detailed comparison between types of business models.

Profit per employee varies dramatically across industry sectors. Data collected in 2009, for instance, shows that finance, media and tech companies reap in excess of $150,000 per employee. In the food, airline and pet industry, by contrast, profit per employee falls far below $25,000.

The significance of these differences shows up in how much workers would stand to gain from redistributed CEO salaries. To take one example, Oracle CEO Larry Ellison’s chart-topping salary of $78.4 million would translate into just $930 a year in extra pre-tax income for each of Oracle’s employees. In industries with much narrower profits per employee, the cash value to employees of redistributed CEO pay can be vanishingly small.

As a result, the effect of SB1372 would be to penalize corporations without regard to their profit per employee. That’s at odds with its intended goal of using tax policy to pressure companies to improve their employees’ economic fortunes. Especially in industries with a low profit per employee, narrowing pay disparity will have no measurable effect.

For that reason, SB1372 is likely to meet stiff resistance, despite its support among high-profile national Democrats. Although Republicans are weak in California, nationwide opposition to wage legislation is powerful and well-organized.

(James Poulos is a contributor to CalWatchdog. Originally published on CalWatchdog.)

Comments

  1. How many different methods can Democrats use to raise taxes and chase more businesses out of California?
    The state now has a 24% poverty level, 30% of the nations illegal aliens and with 12% of the nations population, we have 30% of all welfare recipients which are also the highest paid~!
    Does this sound like a plan for success and the right path for the future of California? Keep electing Liberal Democrats and it won’t change…

  2. $26 an hour minimum wage? What would this do to people on fixed income, retired? The cost of everything else would go up in price just to cover the businesses expense for the wage increases. We’re in trouble, all we’ll have is farming. All other businesses will move out. Welcome to socialism.

  3. The Demoncraps/Marxists/Regressives solution to everything is more taxes. It looks to me as though they are trying to find more ways to make their deficit worse by crippling and forcing more businesses to leave Calif.

  4. Give them time and every ones tax’s well go up and up to as they say feed the wast of the Democrats

  5. I think we should tax the Ca govt employees the same way. We could use their salaries-benefits and compare them to the lowest paid state works and tax them accordingly. That is only fair and equatable Why is it only private enterprise has to be fair and equatable? And yes the communist-democrats are doing everything possible to drive business out of CA. And Obama and the Washington DC democrats are doing everything to drive all business out of the US. The planned collapse is coming folks so you better get ready.

  6. Go ahead punish people for being successful, and give to the do nothings….Haven’t you ran enough business out of California,, FOOLS.

  7. My reply was removed. So I guess censorship is used here.

  8. The Scotsman says

    Californias WAR against business gets BIGGER and BIGGER. The TAX THE CRAP OUT OF THE PEOPLE & BUSINESS keeps on getting wilder and more out of control!
    Come this November, let’s start cleaning out our Legislature Vote out the TAXING DUMBOCRAPS!

  9. Like I was telling my wife last night – the Democrats in Sacramento are hell bent on eliminating the middle class from this state. All that will be left are illegal aliens and professional athletes and actors. They can have it. If I have to pay property taxes equivalent to a house payment why retire here? Belize is sounding real good right now. By the time Obummer gets out of the Shithouse our country will be destroyed. Adios my friends

  10. Vote no on every demoncrat name that appears on the ballot

  11. Demonic-rats~! Keep electing them, eventually they’ll be taking your money!

  12. Now the Liberal Democrats in our state legislature want to pass a law to tax you for every mile you drive, because they’ve already spent the exorbitant taxes you paid for every gasoline. Keep voting for Liberal Demoic-rats you simpletons…

  13. Eduardo says

    I hope that the idiot politicians pass this tax law that punishes employees and executives that excel at their jobs so that their companies will then leave California for Texas or other states that are more friendly to businesses. Then those that voted for these idiot politicians and find themselves unemployed can in return vote them out of office.

  14. M. Studer says

    As much as I hate to say this, I wish that Apple would, just say skrew it, shut down the building of their new campus and tell this state to bugger off. then maybe other large companies will do the same. Think that would get the loons attention? Nah, they ain’t that bright and the large corporations are in the tank for the leftist fools.

Leave a Reply to Eduardo Cancel reply

*