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For executive pay, how much is too much?

ASK THIS | August 27, 2009

In the past, Nancy Pelosi supported a bill to disallow business tax deductions for the portion of executive pay exceeding 25 times that of a firm's lowest paid employees. These days average pay for chief executives can be hundreds of times higher than the lowest paid workers. Would Pelosi back a similar bill today?

By Morton Mintz

A question for Speaker Nancy Pelosi about wretchedly exorbitant executive compensation, such as the $47,345,946 paid in the last two years to the chief executive officer of health-insurer Aetna Inc., Ronald A. Williams:
In years past, the House repeatedly stifled a bill to do something eminently fair, practical and reasonable about such excess: disallow business tax deductions for salaries in excess of 25 times the salary of the lowest-paid employee in the same organization. As a Congresswoman from California you supported the bill. Will you seek and support such legislation now, when the situation is far more extreme?
"The average pay for chief executives rose to 369 times that of the average worker in 2005," Josh Fineman of Bloomberg News wrote in January 2007. That was "up from 131 times in 1993 and 36 times in 1976, according to a study by Kevin Murphy, a finance professor at the University of Southern California."
In a 2007 article posted at The Nation's Web site, I put Murphy's numbers into individual terms: "Suppose that in 1976 an average worker's annual pay was $10,000 and a chief executive's $360,000. Now suppose that in 2005 the worker's pay was $20,000. The executive's pay would be $7,380,000. A $10,000 raise for the worker, a $7,020,000 raise--702 times larger--for the executive.
"The tax laws compel ordinary taxpayers to offset the loss of revenues that results from letting corporations deduct excesses in executive pay, no matter how extreme, as a legitimate business expense," I wrote. "The stifled bill--which did not address non-salary compensation such as royalty payments--would have ended the forced taxpayer subsidies while letting corporations go on paying executives whatever they please."
The bill's sponsor was former Minnesota Democratic Rep. Martin Olav Sabo, who retired at the end of 2006 after 28 years in Congress. The House buried the measure again and again. Whether Democrats or Republicans were in charge mattered not at all.
"It is difficult to believe one individual can be worth so much that he or she warrants a salary of 50 to 100 times other workers in the same business," Sabo said when he introduced the Income Disparities Act of 1991. "I have proposed 25 times because that is approximately the relationship of the President's salary to the minimum wage." (Currently, the presidential salary of $400,000 is 26.5 times the $15,080 earned by a person working 40 hours every week at the minimum wage of $7.25.)
"While my proposal would not stop excessive salaries at the top, it would end indirect support of them through the corporate income tax structure," Sabo continued. "It would make a clear statement that the public policy of this country does not support extreme distortions in the incomes people make, and it would reaffirm the fundamental dignity that the government affords to all working people, including those at the lower end of the income scale. The increases in income disparities of the last decade are clearly out of control and must be turned around."
Four years later, in 1995, Republicans gained control of the House. Sabo then expanded his proposal to call for the first increase in the minimum wage since 1989 and reintroduced it as the Income Equity Act.
"Business owners will be forced to take a long, hard look at how they compensate both those at the bottom and those at the top of the income ladder," Sabo said at the time. Indeed, his bill would have given an incentive to a CEO to hike the pay of his lowest-paid employees in order to increase his own pay. If the lowest-paid employees would get raises, others higher up the ladder would, too.
The Income Equity Act was referred to the Ways and Means Committee and, of course, quietly died there.
Rep. Pelosi was among the 1995 bill's 30 co-sponsors. Not among them were two other very important House Democrats: Reps. Charles Rangel (N.Y.), then the ranking minority member of Ways and Means, and Barney Frank (Mass.), then the ranking minority member of the Financial Services Committee.
Would Rangel support such a bill today? Would Frank? Would Pelosi?

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