Here’s how the idea could work. The current corporate tax rate is a flat 35 percent. In an equity-based corporate tax system, companies with a pay ratio at the historic norm of 40:1, or even up to 60:1, would pay the existing rate and be able to deduct executive pay. But companies that pay their top executives more than 60 times the average worker (including employees in overseas subsidiaries) would pay a higher rate, 40 percent, and those with extreme pay differentials, 80:1 or higher, would pay 45 percent.
Companies with more equitable pay structures, including Whole Foods, would get a tax break, paying as little as 25 percent. This tax structure gives companies far more flexibility than a flat ceiling on executive pay. C-Suite executives could still pay themselves whatever they wanted, but they would have to explain to their boards why it was worth paying a higher tax rate as a result. Maybe their boards will decide that they are so brilliant that it’s worth it.
This is an incredibly interesting idea to me. I’d love to hear some arguments for or against.