Portland Will Tax CEOs to Combat Income Inequality
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Portland, Oregon has found an inventive way to combat income inequality.
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The city plans to make companies pay for granting executives astronomically larger salaries than most of their workers.
Portland's City Council passed a bill Wednesday to levy a 10 percent surtax on companies whose CEOs earn over 100 times the median pay of their employees, the Hill reports. If CEOs make 250 times as much as the median worker, the company will face a 25 percent increase on corporate income taxes.
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The bill is the first of its kind to pass.
However, a similar bill made its way through California state legislature in 2014 before failing.
“When I first read about the idea of applying a higher tax rate to companies with extreme ratios of CEO pay to typical worker pay, I thought it was a fascinating idea — the closest thing I’d seen to a tax on inequality itself,” City Commissioner Steve Novick (D) said in a press release.
The tax uses the framework of 2010 Dodd-Frank Act.
"The tax will take effect next year, after the Securities and Exchange Commission begins to require public companies to calculate and disclose how their chief executives’ compensation compares with their workers’ median pay. The S.E.C. rule was required under the Dodd-Frank legislation enacted in 2010.
Portland’s executive-pay surcharge will be levied as a percentage of what a company owes on the city’s so-called business license tax, which has been in place since the 1970s."
However, President-elect Donald Trump claimed he would dismantle Dodd-Frank during his campaign. If accomplished, this might compromise the new tax law, the Huffington Post reports.
Over 550 Portland companies pay these business taxes, and the new tax law is expected to raise between $2.5 million and $3.5 million a year.
These tax dollars will go to the city's general fund, which subsidizes housing, law enforcement, and various public services, the Times reports.
“Income inequality is real, it is a national problem and the federal government isn’t doing anything about it,” Portland Mayor Charlie Hales (D) told the Times. “We have a habit of trying things in Portland; maybe they’re not perfect at the first iteration. But local action replicated around the country can start to make a difference.”
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Speaking to the Times, Hales admitted the ratio-based-tax increase is “an imperfect instrument."
"But it is a start," Hales added. Hales did not seek re-election and Commissioner Novick lost his bid for re-election, so two of the law's advocates will not be in office when it goes into effect.
Portland Business Alliance president Sandra McDonough opposed the bill and told the Times it was "an empty gesture that will do little to address the issue they say they are trying to impact — pay equity."
McDonough continued: "A better approach for the city would be to work with business leaders on a strategy to grow and retain family-wage jobs in our city,”
The Economic Policy Institute reported in 2014 that the difference's between chief executives' pay and that of the average employee pay spiked drastically between 1965 and 2013.
From the study:
"The CEO-to-worker compensation ratio was 20-to-1 in 1965 and 29.9-to-1 in 1978, grew to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 295.9-to-1 in 2013, far higher than it was in the 1960s, 1970s, 1980s, or 1990s."
Wells Fargo, Walmart and General Electric all qualify for the surtax, the Hill reports.
