California CEO Tax Bill Stalls In State Senate

A California measure that would have tied the state tax rate on publicly traded companies to the ratio between the CEO’s salary and that of the median worker stalled in the state’s Senate, according to the Associated Press.

The measure would have decreased the tax rate in the state – currently 8.84 percent of net income for businesses and 10.84 percent for banks – to 7 percent for any company whose CEO is paid less than 25 times the median salary of a worker in that company, the news source explained. Companies that pay their chief executive more than that would see an increasing tax rate on a sliding scale, passing the current tax rate when the CEO’s pay exceeds 100 times the median pay. The top tax rate would come to 13 percent for companies in which the CEO is paid more than 400 times the median salary of its employees.

“This is not to vilify those individuals,” said Sen. Mark DeSaulnier, D-Concord, before the vote. “They work hard. They are creative. But from a historical standpoint, this is not a sustainable model for us to maintain. Income inequality is a huge threat to California’s economic growth and stability.”

DeSaulnier noted the difference between this ratio today and 30 years ago, citing two CEOs of Disney, according to the Associated Press. Former Disney CEO Michael Eisner received a salary of $750,000 in 1984, a figure that was approximately 37.5 times the salary of the “typical worker.” By contrast, Robert Iger, the current CEO of Disney, receives a salary of $34.3 million, approximately 974 times the median pay of a Disney employee.

Katie Orr, the state government reporter for Capital Public Radio, reported that DeSaulnier was not able to get the votes needed to pass the bill. Numerous business groups opposed the bill on the grounds that it would drive business away from the state and dramatically increase corporate taxes, and several in DeSaulnier’s own party voted against the bill.

Sen. Steve Knight, R-Palmdale, said that the bill was “un-American,” and that governments should not tell companies what to do, according to the Associated Press.

If you have any questions about this post or would like to discuss your company’s tax,trust, and estate matters , please contact me, Frank L. Brunetti at ScarinciHollenbeck.com.