Historic CEO Pay Tax Passes in Portland

The city council in Portland, Oregon, adopted a new local tax rule on December 7 that sets a landmark precedent for cracking down on excessive CEO pay.

In a 3-1 vote, the council agreed to add a surtax on the city’s existing business license tax for firms that pay their CEOs more than 100 times what their typical worker receives. This will be the nation’s first tax penalty for extreme CEO-worker pay gaps.

The city has identified more than 500 corporations that do enough business in Portland to be affected by the surtax, including many that regularly dominate the highest-paid CEO lists, such as Oracle, Honeywell, Goldman Sachs, Wells Fargo, and General Electric. The measure will generate up to $3.5 million in annual revenue to support public services.

“This path-breaking policy tackles a key driver of our growing inequality,” notes Institute for Policy Studies veteran executive compensation analyst Sarah Anderson. “I predict this will spark a wave of similar actions, much like the local living wage campaigns that have spread like wildfire across the country.”

Before the vote, the bill champion, Commissioner Steve Novick, said, “This is all about sparking a national movement.” According to the Portland revenue department, most large U.S. cities have tax structures that allow for a similar CEO pay surtax.

The Portland proposal could also build momentum for federal action. Rep. Mark DeSaulnier (D-CA) and Rep. Bonnie Watson Coleman (D-NJ) have introduced the CEO Accountability and Responsibility Act (H.R. 6242), which would increase federal tax rates on companies with CEO-worker pay ratios of more than 100-to-1. Polls show public outrage over CEO pay cuts across the political spectrum.

In assessing the surtax, the Portland government will make use of CEO-worker pay ratio data that will soon be available under a provision of the 2010 Dodd-Frank financial reform law. Publicly held corporations will be required to report the ratio between their CEO and median worker pay to the Securities and Exchange Commission, beginning with 2017 figures.

“We may be at the dawn of a new ‘pay ratio politics,’” says IPS associate fellow Sam Pizzigati, the author of The Rich Don’t Always Win. “Corporate pay policies have been driving our income inequality. With annual pay ratio disclosure, we can start insisting that corporations that do the most to make this inequality worse face real consequences for the damage they’re doing.”

For more details on the Portland surtax, see these Institute for Policy Studies talking points.