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Press release/statement

Capping Tax Dollars Spent on Contractor Executive Pay Could Raise Worker Wages

NEW YORK, NY – Following the Census Bureau’s release of poverty numbers verifying the country’s growing income gap, national public policy center Demos has published a new report illustrating how the federal government promotes inequality through its contracting policies. Underwriting Executive Excess: Inside a $7 Billion Taxpayer Subsidy of Inequality highlights how lowering the executive compensation ceiling from the current $763,039 per year to $230,700—the salary of the Vice President – could free up more than enough money to increase the pay of hundreds of thousands of federal contract workers making less than $12 an hour.

Using data from a recent Government Accountability Office (GAO) study that unveiled new figures on executive compensation costs paid by the taxpayer, this report estimates the savings that would come from restricting excessive government payouts to executives at contracted companies. By capping executive pay at $230,700, the government would save $6.97 to $7.65 billion that could be used to raise the pay of those earning poverty wages by as much as $6.69 an hour, or $13,902 per year.

“We estimate that the federal government spends $20.8 to $23.9 billion paying private contractors for the compensation of top executives,” said Amy Traub, Demos Senior Policy Analyst and co-author of the report. “It’s the taxpayers who are footing the bill for these excessive salaries. Limiting their compensation to that of the second-highest office in the country is simply common sense. And it shows that there is more than enough money already in the federal contracting system to provide fair wages to everyone working on behalf of our country.”

A previous report from Demos revealed that an estimated 560,000 federally contracted employees receive insufficient wages that prevent them from meeting the basic needs to support their families. Across the country, evidence of the impact of municipal-level living wage laws indicates that the cost to taxpayers does not rise dramatically when workers are paid decent wages. This study shows that even substantial cost increases could be absorbed within the federal contracting system without shifting the cost to the taxpayer.

“Even with a lower compensation cap, companies could still pay their executives at any rate they choose—it’s just that taxpayers would not be subsidizing so much of the bill,” said Robert Hiltonsmith, Demos Policy Analyst and co-author of the report. “Limiting the amount of executive pay the public underwrites would not affect a company’s ability to recruit or retain personnel.”  

As labor unrest across various industries intensifies and workers continue to strike, the report offers policy recommendations including support for the Commonsense Contractor Compensation Act of 2013, a bipartisan bill sponsored by members from both the House and the Senate, that would set this $230,700 limit. Additionally, it notes that President Obama could issue an executive order to require federal agencies to raise wages and improve workplace standards for low-paid employees of federal contractors.

Demos is a public policy organization working for an America where we all have an equal say in our democracy and an equal chance in our economy. As part of Demos’ on-going work to create pathways that ensure a strong and diverse middle class, Demos supports a living wage and improved job quality across the labor force.

The brief’s anchor report, Underwriting Bad Jobs: How Our Tax Dollars Are Funding Low-Wage Work and Fueling Inequality, exposes how taxpayer dollars fuel low-wage work through federal contracting.

To speak with Amy Traub or Robert Hiltonsmith, please contact:

Elektra Gray
Director of Communications
[email protected]