California Considers Tax on Companies With Large CEO-Worker Pay Gaps

In response to growing income inequality, some California lawmakers are looking at the possibility of tying tax rates for corporations to the gap between how much they pay their CEOs and what their average employees take home. That’s the idea behind state Senate Bill 37, legislation first introduced by Senator Nancy Skinner (D-Berkeley) in December 2018.

Currently, California taxes corporations at a rate of 8.84 percent, and financial institutions at a rate of 10.84 percent. Under SB 37, corporations making over $10 million annually would be subject to a tax rate between 10.84 and 14.84 percent (12.84 and 16.84 percent for financial institutions), depending on the ratio of their CEO salaries to average worker wages. Companies with a ratio of more than 300 to one would pay the highest rate. SB 37 would also increase these tax rates for companies outsourcing to independent contractors or workers in foreign companies.

Revenue generated by the law would go to educational and early childhood programs. “The goal of SB 37 is to shrink income inequality,” said Sen. Skinner in a January 2020 hearing, adding, “The design of SB 37 … recognizes that reliance on state services increases when corporations underpay their workers.”

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