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CEO Tax

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This is an interesting approach to grotesque CEO pay in the New Gilded Age.

In Portland, Oregon, lawmakers aren’t holding their collective breath. In a move that made international headlines, Portland’s City Council voted earlier in December to approve a first-of-its-kind tax on public companies that pay their chief executive officers more 100 times their median workers’ pay.

According to Portland Commissioner Steve Novick, the tax aims to address growing income inequality by targeting “the phenomenon of outrageous CEO pay.” Some economists, said Novick, argue that escalating CEO pay is more than just a symbol of income disparity in the U.S. but has actually contributed to the nagging problem. Novick sponsored the ordinance authorizing the new tax.

“If we can do something to roll back the explosion in CEO pay, then we can do something about the explosion of economic inequality in general,” he said.

Portland’s new tax, effective in 2017, applies to publicly traded companies that do business in the city. Firms that exceed the 100-to-1 CEO-to-median worker pay ratio will face a 10 percent surcharge on their city tax bill. (Portland already levies a 2.2 percent business tax on net income.) Companies that pay their CEOs more than 250 times the median employee pay will pay a 25 percent surcharge.

More than 500 publicly traded firms do business in Portland — including Wells Fargo (WFC), Walmart (WMT) and General Electric (GE), companies known for their “sky-high CEO pay,” said Novick.

To monitor CEO compensation, Portland will rely on data that public companies must file with the Securities and Exchange Commission beginning in 2017. Public companies will be required to report their CEO-to-employee pay ratios to the SEC, under a rule designed to shine on a light on extreme pay gaps and allow cross-company comparisons.

While income inequality is a national problem, Novick said it has contributed to Portland’s current housing-affordability crisis. The fast-growing Northwest city regularly leads the country in home-price appreciation, partly because of the strong demand for housing created by an influx of new residents in recent years.

This is actually a pretty small tax, expected only to raise a few million a year for the city. And it has infuriated the city’s business community. I don’t know enough about the legal side of this to have much of a clue as to how it would stand up in court. But if it was applied with high rates in more municipalities and states, since it obviously isn’t going to happen nationally, what sort of impact could this make on pay disparities and income inequality?

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