Portland Institutes Tax on Companies with High CEO Salaries

December 15, 2016

KenTeegardinIn 2010 the median salary for the 200 highest-earning executives in the U.S. topped out at nearly $10 million. Just five years later, though, that number doubled to almost $20 million. Meanwhile, researchers at the Economic Policy Institute found that CEOs in 2013 earned more than 300 times the salary of average workers. For comparison, in 1965 chief executives brought in just 20 times more pay than their average employees.

To combat this increasing inequality, last week government administrators in the city of Portland, Oregon, voted to impose a tax on businesses that overpay their executives. According to the new rules, companies whose CEOs earn more than 100 times the salary of their average employees must pay a surtax of 10 percent. The rate goes up to 25 percent for businesses that pay executives more than 250 times the average salary. The tax will go into effect next year on the back of a new rule from the SEC that requires companies to disclose how their executive pay compares to that of rank-and-file workers.

For many communities, imposing an additional tax on businesses may seem like a surefire method to drive those companies away. However, Portland has levied a “business license” tax since the 1970s and still seen healthy growth in the last few decades. In fact, any violators of the new CEO pay rules will simply have this tax increased. While the city’s business association doesn’t like these upcoming requirements, government officials appear confident that they’re taking a step in the right direction. “Income inequality is real, it is a national problem and the federal government isn’t doing anything about it,” said Portland mayor Charlie Hales. “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.”

Questions:

 

  1. Will Portland’s new tax for high-paid CEOs drive companies away from the city?
  2. Should other communities take Portland’s lead and institute similar tax penalties for outsized executive compensation?

Source: Gretchen Morgenson, “Portland Adopts Surcharge on C.E.O. Pay in Move vs. Income Inequality,” The New York Times, December 7, 2016. Photo by Ken Teegardin.

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