It falls to cities to do creative, progressive policy making and that is exactly what Portland is undertaking with a tax to address income inequality.
Portland, Oregon just adopted a brilliant response to the community’s serious issue of income inequality. The city council passed an additional tax on companies that give their CEOs (chief executive officers) outrageously high salaries.
Stark Income Inequality Is Evident In CEO Pay Rates.
Any publicly-traded company that pays its CEO 100 times or more what its median worker makes will be assessed a 10 percent surtax on what the company owes Portland. For companies whose CEOs reap 250 times the median worker’s wage, the surtax will be 25 percent. That new revenue is to be used for programs to help the city’s homeless.
The idea came from councilman Steve Novick and passed on a vote of 3 to 1. Outgoing mayor Charlie Hales cast his vote in favor of the tax.
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.
The councilman was inspired by reading the bestselling book ‘Capital’ by French economist Thomas Piketty. One of Piketty’s conclusions was that ‘exorbitant’ CEO pay is a factor in widespread income inequality.
The city estimates that there are 540 publicly traded companies that are subject to Portland’s business income tax, though not all will meet the standard for the surtax. Nevertheless, the new income inequality law is expected to raise $2.5 million a year, beginning in January 2018.
Portland’s Tax On Income Inequality Is Unique.
The tax is unique in the world, although California tried to pass a similar measure that failed in 2014. It will rely on compensation data that the federal Securities and Exchange Commission is required to report.
One of Novick’s hopes is that the tax will discourage companies from compensating their CEOs with salaries that are wildly disproportionate to what other employees earn. Another expectation is that the idea will reach far beyond Portland. He said:
I’m hoping we start getting calls from cities, counties and states, and a year from now many other jurisdictions will have done the same thing.
At a time when a billionaire CEO is ready to assume the presidency of the United States, persistent innovation on dealing with income inequality needs to come from somewhere other than the federal government. Mayor Charlie Hales made note of the fact by saying:
It falls to cities to do creative, progressive policy making, and this is exactly what this is.
Of course, business interests immediately groused about the new tax. Lobbyist Marion Haynes of the Portland Business Alliance insisted that the tax would be ineffective, without offering any evidence to back up her statement. Instead, she sniffed:
This is not something that can be dealt with at a local level.
Obviously, she would prefer that it not be dealt with at any level. Clearly a Trump administration doesn’t have income inequality on its priority list. Sandra McDonough, CEO of the Portland Business Alliance, dismissed the tax as a ‘media stunt’ and ’empty gesture’, saying:
Our belief is that if the city truly wanted to address that issue then they should be focusing on working with businesses to grow quality jobs that will improve family income.
Her suggestion would no doubt involve tax concessions for corporations from the city, not surcharges. It goes without saying that the CEO isn’t looking at how to help the homeless.
In 2018, the proof will be in on the effectiveness of such innovation. Congratulations, Portland, on being the first to take this bold step.