A new proposal — Senate Bill 747 — in the Hawaii Legislature would change that by levying a general excise tax surcharge to any island business where the chief executive officer earns more than 100 times the company’s median employee.
The idea comes as Hawaii struggles to fill a revenue hole created by the decimation of multiple industries in the wake of coronavirus shutdowns. The need for revenue is so great that Gov. David Ige has proposed $285 million in cuts to public workers’ pay and benefits. He didn’t respond to a Civil Beat request for comment on this bill.
The proposal also is part of a nationwide progressive push against economic inequality. During Sen. Bernie Sanders’ presidential run, he proposed a federal tax on companies where the highest paid employee earned more than 50 times the median employee. He and other members of Congress have introduced similar federal legislation to no avail.
Publicly traded companies have been required to report their CEO pay ratios annually since 2018 as part of financial industry reforms approved in the 2010 Dodd-Frank Act.
Portland, Oregon, became the first city to adopt a tax on companies with high CEO pay ratios in 2016. San Francisco followed after voters approved a ballot initiative last November. Hawaii would be the first state to pass such legislation, although eight other states are considering similar bills.
Joli Tokusato, a front desk clerk at the Ilikai Hotel in Waikiki, thinks the disparity between what chief executive officers make at Hawaii hotels and the median worker is “obscene.” She likes SB 747 but emphasized she would rather see another bill passed that requires hotels to rehire laid off employees.
“The state definitely needs the revenue, but I’ll be shocked if it actually passes,” Tokusato said.
Tokusato’s cynicism may be merited. Hawaii Sen. Rosalyn Baker, who leads the Commerce and Consumer Protection Committee, said she isn’t planning to call a hearing for the bill. The measure must be considered by her committee and the Ways and Means Committee, which deals with finance-related bills, before it can go before the full Senate for a vote.
Baker said her committee didn’t have enough time to discuss the issues the bill raised and the measure didn’t seem to have much support.
“No one was clamoring for it, no one was asking for it, so we moved on to other things that seemed to be a greater priority for the committee,” she said.
Sen. Donovan Dela Cruz, who leads the Ways and Means Committee, said the bill has until Friday to be heard in Baker’s committee and referred to his committee.
Sen. Stanley Chang, who is vice chair of the Commerce and Consumer Protection Committee, introduced the bill along with Sens. Laura Acasio, Gil Keith-Agaran, Karl Rhoads, Les Ihara, Maile Shimabukuro and Brian Taniguchi.
“I hope that we continue this conversation both in the community and in the Legislature and I hope that this measure will succeed at some point,” Chang said. “This bill is about ensuring if executives benefit, then so do workers.”
Growing Pay Gap
The gap between CEOs and employees hasn’t always been so wide. In 1980, Bloomberg Businessweek reported that the ratio of CEO pay to employee pay was 42 to 1.
She has been studying executive compensation for two decades and helped lobby to require companies to disclose CEO pay disparities in their SEC filings.
She said CEO pay taxes are still a very new issue that has gained momentum in the last couple of years. There’s a business argument for the taxes too, she said, noting that large pay disparities can hurt employee morale and increase company turnover rates.
Anderson said Chang’s proposal would be a good way to use the tax code to incentivize companies to narrow CEO-worker pay gaps.
Anderson said she would encourage Hawaii legislators to consider a graduated tax for companies depending on how extreme their CEO pay ratios are.
“The people at the top of companies are simply not hundreds of times more valuable than rank-and-file workers,” she said. “It sends a disempowering message to workers to be paying the top person so much more than others.”
But that doesn’t justify a new tax, said Keli’i Akina, who leads the nonprofit advocacy group Grassroot Institute. Akina noted Hawaii is one of the highest taxed states and is already an expensive place to do business.
“If lawmakers really are interested in helping us recover economically, they should forget tax hikes and instead look for ways to grow the economy,” he said in an email. “Every policy goal they might have, from encouraging new industries to raising more revenues, would be better accomplished by encouraging economic growth and prosperity.”
Elsewhere, critics of CEO pay disparity taxes have called the proposals arbitrary and said the executive compensation reflects the value directors bring to companies.
San Francisco voters passed a broader version of the tax in November. The San Francisco tax applies to both public and private companies, requiring private companies to report their CEO pay ratios to the local government. It is expected to bring in at least $60 million and up to $140 million annually.
The San Francisco measure also uses the city’s median worker salary as a benchmark, instead of allowing companies to compare their CEO pay to their own workers.
Both Portland and San Francisco’s taxes include graduated scales that increase as company CEO pay ratios increase.
That’s not the case with the Hawaii bill, which would impose a 0.1% surcharge on the tax liability of any company where the CEO pay ratio exceeds 100 to one. Like San Francisco’s measure, SB 747 would apply to both public and private companies. Chang said he doesn’t know yet how much money it might bring in.
He said he was partially inspired by federal legislation introduced by Elizabeth Warren and he hopes that it will spur dialogue about economic inequality in the state. He said he hadn’t yet spoken with legislative leadership about the measure.
“The pandemic has brought about a crisis here in the state of Hawaii economically and otherwise. I’m hopeful that our Legislature will recognize the need for us to take bold action to address the pandemic,” he said.
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