The California Legislation That Seeks to End Outrageous CEO Pay

May 15, 2014 at 1:33 PM ET

Over the last 30 years in America, the poor have gotten poorer while the rich have gotten richer. The average CEO now makes 380 times as much as the typical rank-and-file employee.

Anger over this yawning gap is rising. Once the preserve of academic discussion or wonky political analysis, income inequality is now fueling on-the-ground protests like Occupy Wall Street.

Some say the answer is to raise the minimum wage, while others argue for more tax breaks for the middle class. Now two democratic senators from California are suggesting a new and somewhat controversial approach: Tax companies extra if their CEO makes a ton of money.

In February, Mark DeSaulnier Loni Hancock introduced SB 1372, a bill that would hit companies with an extra tax if their CEO makes more than 100 times his or her employees’ median salary. On the flip side, if the CEO makes less than 100 times the workers’ median salary, the company would get a tax break.

The bill will go before the California Senate Appropriations Committee next week. If it is approved, it will enter the state legislature this fall for state-wide approval.

California is typically ahead of the curve on social and environmental issues, like the California Clean Energy Jobs Act. But this bill faces an uphill climb. Not a single pro-business group is supporting it—and more than 20 are actively opposing it. These are groups whose boards are composed (mostly) of CEOs and other top executives. David Brunori, a tax consultant, wrote earlier this week that SB 1372 “reflects policy based on petty jealously. We envy the guy driving the Lamborghini—let’s tax him.”

Right now, California’s corporate income is taxed at a flat rate of 8.84 percent. Under the proposed new bill, a company whose CEO makes more than 400 times the pay of the median worker will be forced to pay 13 percent in corporate taxes. But if they make less than 25 times their workers’ median pay, the company pays just 7 percent.

Under the bill, there are two different ways that CEOs could avoid their tax hike. If they don’t want to reduce their own salaries, they could raise their worker’s salaries.

DeSaulnier, who has sponsored a handful of other progressive bills, including the Consumer Internet Privacy Act and the Healthy Schools Act, presides over a swath of land east of Oakland. “History has taught us that the gross disparity between CEO and worker pay is a direct threat to American democracy,” Senator DeSaulnier said in a recent statement. “The difference between CEO and worker pay has skyrocketed over the past few decades—it is unsustainable and a danger to our society. We must focus on restoring the middle class and stop fueling excessive income inequality.”

The numbers are indeed staggering: According to the Economic Policy Institute, the average CEO salary in America rose 876 percent between 1978 and 2011. Over a similar time period, the share of income going to the top 1 percent of the United States grew 10 times faster than amount going to the bottom 99 percent.