Portland to tax CEOs who earn 'too much,' a first for income inequality fight

Publicly traded companies in Portland, Ore., that pay their chief executives at least 100-times as much as their median employee salary will pay a 10-percent surcharge on the city's current business tax.

First Look

In a novel approach to fight income inequality, Portland, Ore., will begin imposing a tax increase next year on publicly traded companies that pay their chief executives at least 100 times as much as their median worker salary.

The initiative, which narrowly passed the City Council on Wednesday, is the first of its kind in the United States. But it represents a trend of local and state officials formulating innovative answers to the American public's rising concern over disproportionate pay. Some pushing for more wage equality argue that bottom-up proposals – from tiered minimum wages based on locality, to Portland-style pay-imbalance penalties – may become more important in the coming years, particularly as the new administration settles in with Republican majorities in both houses of Congress.

Before casting the decisive vote on Portland's plan, Portland Mayor Charlie Hales, a Democrat, said policies like this one are what local governance should be about.

"It falls to cities to do creative, progressive policymaking," Mayor Hales said, as The Oregonian reported, "and this is exactly what this is."

The plan calls for a 10 percent surcharge in the city's business tax for any publicly traded company with a CEO-to-worker pay ratio of 100-to-1 or greater, and a 25-percent surcharge for companies with a ratio of 250-to-1 or greater. Officials expect that plan will raise an additional $2.5 million per year beginning in January.

The tax will be based on the income ratio each company is required to report, beginning in January, to the US Securities and Exchange Commission (SEC) – a reporting requirement mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

For the federal government's part, the SEC has been considering new rules that would require company executives to surrender their bonus pay if the firm loses money, as The Christian Science Monitor's Laurent Belsie reported in September. The majority of Fortune 500 companies already have these so-called "clawback" policies, but the SEC could standardize and enforce them uniformly.

Under the Trump administration, however, Americans should expect the SEC to shy away from new regulation and even lighten up on enforcement efforts, Joseph McCafferty wrote for MIS Training Institute (MISTI) for auditing and information security. 

"Indeed, Trump has said that he will make rolling back some of the provisions of the Dodd-Frank Act – the legislative response to the Financial Crisis of 2008 – a priority," Mr. McCafferty wrote. 

Despite increasing concern, executive pay has actually stopped rising in relation to income by average workers. It remains high, but it is no longer rising as it did in the 1990s. Last year, average CEO pay, at $15.5 million, was 276-times more than what average nonsupervisory workers made in the private sector. That figure had been as high as 376-times average worker pay in 2000, during the dot-com bubble, but it had been as low as 30-times average worker pay in 1978, as the left-leaning Washington think tank Economic Policy Institute (EPI) reports.

Some cities have raised their own local minimum wage, including Seattle, which made the "Fight for $15" a reality, setting its bottom-dollar for legal labor at $15 in 2015, as the Monitor reported. And on Election Day, voters in several states approved more modest minimum wage increases: $12 per hour in Maine, Arizona, and Colorado, and $13.50 per hour in Washington State.

State legislatures, by contrast, have been slower to introduce wage reforms, and Congress has not changed the federal minimum wage since 2009, when it increased from $6.55 to $7.25 per hour.

Given how much cost-of-living rates vary across different parts of the country, some have lobbied for more locally tailored minimum wages. Centrist think tank Third Way has argued that raising the federal minimum wage uniformly again would "either excessively raise employer hiring costs to a point leading to unnecessary job losses, or leave workers in high-cost areas unable to afford a basic standard of living," as the Monitor reported in March. The group suggests a five-tier scale that accounts for regional differences.

"This policy would ensure that a cashier in Manhattan is essentially earning the same minimum wage in real terms as a cashier in Carbondale, IL and largely addresses fears that a big city minimum wage would destroy jobs in low-cost small towns," they wrote.

The Third Way proposal resembles the three-tiered system Oregon Gov. Kate Brown signed into law earlier this year, which will increase pay incrementally. By 2022, the minimum wage will rise to $12.50 in rural Oregon, $13.50 in smaller cities, and to $14.75 in Portland. 

Material from The Associated Press was included in this report.