Promising to reduce widening U.S. income inequality, Democratic front-runner Hillary Clinton wants to use the tax code to entice corporations into sharing near-record profits with their workers.
Clinton said Monday that she plans to detail a profit-sharing proposal later this week that “will be good for workers and good for business. Studies show profit-sharing that gives everyone a stake in a company’s success can boost productivity and put money directly into employees’ pockets. It’s a win-win.”
The idea was introduced in a speech delivered at the New School, a university in the heart of Manhattan. It was billed as the first economic address of her 2016 presidential bid, and Clinton struck to broad goals such as boosting middle-class incomes, introducing more fairness in the tax code and lifting the number of women in the workplace.
But the Clinton campaign highlighted what it called a novel proposal to expand company profit-sharing with employees.
“We need new ideas . . . and one I believe in and will fight for is profit-sharing,” Clinton said. “Hard-working Americans deserve to benefit from the record corporate earnings they helped produce.”
Clinton vowed to produce ways to encourage companies to share profits with their workers, but she did not offer any details. She said those will come Thursday in the battleground state of New Hampshire.
The idea is likely to approximate a section of a 171-page report issued in January by the center-left Center for American Progress, a think tank with ties to the Clinton campaign. The report calls for allowing larger companies to lower their overall tax bill by deducting incentive-based pay such as profit-sharing from their taxable income. Under its proposal, the profit-sharing would have to help lift the earnings of employees, not just the top management.
“Firms should be eligible for such tax benefits only if incentive programs are sufficiently broad based to cover most of their workers – for example, if the value expended on the top 5 percent of employees is also expended on the bottom 80 percent,” the group’s report said.
The report did not estimate what such a change would cost the U.S. Treasury in lost tax revenue. The campaign did not discuss how any change might be paid for, either.
Another idea in the report called for providing relief from the estate tax to founders or owners of smaller companies if they transfer the firm into an Employee Stock Ownership Plan. These plans, which now number more than 7,000 nationwide, according to the National Center for Employee Ownership, provide workers ownership stakes in their companies and/or bonuses paid in company stock.
That was hinted at elsewhere in Monday’s speech, when Clinton spotlighted the problem of “quarterly capitalism.” That’s where companies are focused on short-term share prices and paying dividends to investors, at the expense of investing in their workers and raising their pay.
“In recent years some of our biggest companies have spent more than half their earnings to buy back their own stock and another third or more to pay dividends,” Clinton said. “That doesn’t leave a lot left to raise pay or invest in the workers who make those profits possible.”
The issue of profit-sharing aims to better align the interests of workers and management. It also fits neatly into the broader debate over Wall Street and income inequality.
Companies that are publicly traded are under pressure to show quarterly profits, often at the expense of investing for the long term. It also means that these profits flow to shareholders more than to stakeholders such as company employees.
The campaign hit at this theme later in the day, updating the campaign website to tout, among other things, the idea of encouraging companies to share profits with workers. It noted, “Top CEOs earn 300x more than a typical American worker.”
Americans whose 401(k) retirement plans invest in publicly traded companies benefit indirectly from corporate profits. But only 52 million active workers have such retirement plans, so the benefits from corporate profits flow to the wealthy, since statistically they are more likely to be invested in financial markets. Companies that still provide old-fashioned pensions to workers or retired workers also benefit from rising stock prices.
Corporate profits in the first quarter of this year were up 9 percent over a 12-month period, although they dipped in the last two quarters because of the strengthening U.S. dollar, which made U.S. goods and services more expensive relative to other major currencies.