August 23, 2019
What can small businesses make of booming CEO pay? First, we look at the numbers. Lawrence Mishel and Julia Wolfe of the Washington, D.C.-based Economic Policy Institute dove deep into the data on compensation trends in the U.S. over the past 40 years. What they found is that those at the commanding heights of the economy are enjoying larger slices of the pie, unlike everybody else.
According to Mishel and Wolfe, “From 1978 to 2018, CEO compensation grew by 1,007.5% (940.3% under the options-realized measure), far outstripping S&P stock market growth (706.7%) and the wage growth of very high earners (339.2%). In contrast, wages for the typical worker grew by just 11.9%.”
Main Street is not feeling the love, which a recent opinion poll of 500 small business owners across the U.S. reflects. They support an economic issue prominent in the 2020 presidential election.
According to the poll, which Morning Consult conducted: “Nearly two-thirds of small business owners support increasing taxes on the wealthy: 64% of small businesses support increasing taxes on the wealthy (42% strongly support it). Fifty-three percent say increasing taxes on the wealthy would not hurt small businesses. Of those polled 76% said their annual income was $100,000 or less.” [The Morning Consult poll was conducted for Businesses for Responsible Tax Reform whose co-chair is also the President/CEO of the SC Small Business Chamber of Commerce.]
That small business sentiment to tax the wealthy at higher rates matches a policy recommendation of the EPI’s Mishel and Wolfe. They write the following:
“The economy would suffer no harm if CEOs were paid less (or taxed more). We need to enact policy solutions that would both reduce incentives for CEOs to extract economic concessions and limit their ability to do so. Such policies could include reinstating higher marginal income tax rates at the very top; setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation; establishing a luxury tax on compensation such that for every dollar in compensation over a set cap, a firm must pay a dollar in taxes.”
The CEOs enjoying the booming pay trends of the past four decades do not need a weatherperson to see this wind of higher taxes on them blowing.
Take the Business Roundtable. It released a statement titled “Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans.’” This is of course an admission that the economy has failed in this respect. The word tax does not appear in the BR statement.
“The American dream is alive, but fraying,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co. and Chairman of Business Roundtable, in a statement.
“Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”
It is worth noting that JPMorgan Chase and Co. on Dimon’s watch was a major recipient of taxpayer dollars when Uncle Sam stepped in to rescue the big bank from failing over a decade ago.
That was not a miracle of the marketplace. Rather the bailout of Dimon’s employer was a conscious tax policy decision of the federal government. Oh, and he kept his job. That is nice work if you can get it.
The Morning Consult opinion poll shows small business preferences for tax policy to improve their enterprise. Consider this:
“Respondents said their first choice is making the first $25,000 in profit for a small business tax free. The second choice no doubt has broad appeal among the American populace of “simplifying the tax code.”
Other tax policy preferences range from “relief on payroll taxes” to “equalizing the tax savings rate created by the law between small and large businesses and expand it to include entrepreneurs in all fields” and lastly “doubling the startup tax deduction for small business.”
It will be interesting to see which tax policy proposals to help small business get traction in the forthcoming presidential election season.