Portland, Ore.,’s city council passed a measure Wednesday that would tax companies with high CEO pay, making it the first jurisdiction in the U.S. to attempt to directly target inequality within companies.
The law will establish a business surtax of 10 percent on any publicly traded company doing business in Portland at which the ratio of CEO pay to median worker pay is more than 100. The surtax will rise to 25 percent for companies with ratios over 250. It goes into effect in January.
The ordinance will make use of a new federal rule, instituted by the Securities and Exchange Commission as part of President Obama’s Wall Street reforms, that will require public companies to disclose the ratio between what their CEOs are paid and the median earnings of workers at the company.
Steve Novick, the outgoing city commissioner who introduced the provision, said it was “a fascinating idea — the closest thing I’d seen to a tax on inequality itself.”
Novick also said he drew motivation from the writings of Thomas Piketty, the French economist whose book warning of the possibility that wealth inequality might rise indefinitely without government intervention became a surprise best-seller.
The measure will raise the tax rates on about 500 publicly traded firms that do business in the city, according to Portland’s Revenue Bureau, generating $2.5 million to $3.5 million a year, to be directed to homeless services.
Although the measure was passed in Portland, noted for its progressive politics, its advocates hope — and its critics fear — that its use of the SEC pay ratio will be replicated in other jurisdictions. Congress never provided a motivation for requiring corporations to disclose CEO-to-worker pay ratios, but the SEC suggested that one reason would be to provide greater accountability to boards of directors.
Critics of the tax suggested that it would discourage corporations to do business in Portland. The tax would not apply to private companies, which don’t have to disclose pay ratios.
