Portland Votes to Tax Companies with High CEO Pay Ratios

Portland, Oregon has become the first US city to put a price on what some consider to be excessive CEO compensation. On Wednesday, its city council approved a surtax on public companies licensed to do business in the city whose chief executives earn more than 100 times their median employee, the Oregonian reports:

The tax targets publicly traded companies whose chief executives report salaries at least 100 times higher than the salary of a median worker. Officials expect to raise $2.5 million a year starting in January 2018, with [Commissioner Steve] Novick hoping the money will help pay for homeless services. … The tax relies on compensation data the federal Securities and Exchange Commission will report beginning next year. …

Under Novick’s tax plan, a company with a CEO-to-worker ratio of at least 100-to-1 will pay a surcharge equal to 10 percent of the amount it pays for Portland’s business tax. A company with a 250-to-1 ratio or greater would pay a 25 percent surcharge.

Novick describes his scheme as effectively a tax on inequality, but the Portland Business Alliance, which opposes the plan, claims it won’t do anything to solve to that problem. Nonetheless, other cities and states could conceivably try a similar approach, the New York Times adds:

Portland officials said other cities that charge business-income taxes, such as Columbus, Ohio, and Philadelphia, could easily create their own versions of the surcharge. Several state legislatures have recently considered bills structured to reward companies with narrower pay gaps between chief executives and workers. In 2014, a bill in California proposed reducing taxes for companies whose executives were paid less than 100 times above the median worker. The bill did not pass.

One potential stumbling block for Portland’s initiative, however, is that the SEC pay reporting rule may not survive once Republicans take control of the White House and both houses of Congress in January. While president-elect Donald Trump cannot unilaterally reverse the rule, as he has pledged to do to numerous regulations created by executive order under President Barack Obama, a bill introduced in Congress to reverse the pay ratio reporting rule and other provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act now looks more likely to pass and be signed into law. If the rule is scuttled before it comes into effect, it is unclear how Portland could enforce its new tax plan.