On August 9, 2015, the New York Times published an article titled Capitalists, Arise
by Peter Georgescu, which proposed a five year trial program in which the government would give a tax break to companies that increase the salaries of their employees earning less than $80,000. Rather than dismissing such a notion out of hand as another corporate tax giveaway, maybe we should consider the possibility of using the corporate income tax to penalize inequality and reward equality. For example, we might raise the overall corporate income tax rate but allow businesses to discount the applicable rate by the Gini coefficient of the employee compensation paid by their enterprise.
Since the Gini coefficient varies from 0 for total equality up to 1 for total inequality, an enterprise such as a worker cooperative in which all employees received the same pay would have an effective rate of 0%, while a company with a CEO drawing $3,000,000, two supervisors at $150,000 each and 20 minimum wage workers at $15,080 would have an effective tax rate equal to about 85% of the nominal rate. If the nominal rate were raised to 40%, the effective rate would be 34%. If the company used twice as many workers at half time, the effective rate would go up to 35.2%. But if the CEO took a pay cut to $1,000,000, the effective tax rate would go down to 29.2%. If the CEO's pay dropped to the same level as the supervisors, the effective rate would be only 18.8%. If the minimum wage were $15 an hour or $31,200, the effective rates would be 31%, 23.3% and 11.5%, depending on the CEO’s level of compensation.
The Gini would have to be applied to an entire enterprise, defined as the ultimate parent entity as under the Hart-Scott-Rodino Act and all of its controlled subsidiaries in order to prevent companies from breaking their operations down into separate legal entities for each income bracket. Compensation would also need to include non-wage compensation paid to executive employees in order to keep companies from camouflaging their compensation structures.
A similar approach could be taken to move from free trade to fair trade. Instead of setting tariffs country by country, they could apply on an enterprise basis, again subject to a Gini discount. Companies exploiting cheap foreign labor while lavishly rewarding their executives would then be at a comparative disadvantage to more egalitarian competitors.
I would be interested in hearing from members of the community whether a plan such as this could work from a technical perspective. Since the government already has payroll records for each enterprise, calculation of the Gini for any given taxpaying company should be relatively straightforward for U.S. employees. Information on foreign subsidiaries would be a bit harder, but one might have a default assumption that foreign employees are paid the median wage for each country unless the taxpayer produced evidence to the contrary.
Maybe we should ask Peter Georgescu's group of concerned business leaders to put their money where their mouth is and back a combined tax increase and Gini discount.