By Mark Karlin. This article was first published on Trouthout.
Portland, Oregon, has just adopted a new ordinance that will tax excessive CEO pay, according to a news release from the Institute for Policy Studies (IPS) in Washington, DC:
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.
IPS issues a report each year called “Executive Excess.” In a September commentary, I wrote about this year’s report, which found that the nation’s top 20 US banks gave their executives more than $2 billion dollars in tax-deductible bonuses over the past four years.
The problem of exorbitant executive pay is not limited to Wall Street and the financial world. One study at Glass Door Research estimated that “the average CEO earns 204 times median worker pay.” Estimates vary from study to study, though, and it is hard to pin down numbers for some companies. However, due to a new Securities and Exchange Commission regulation, companies will be required as of 2017 to report information on worker and CEO pay that will lead to the government and other organizations being able to peg the exact CEO-to-worker ratios at any given company. Nonetheless, there is enough public information now to demonstrate that a large number of CEO salaries and bonuses far exceed 100 times the median worker salary.
Sarah Anderson, who is a co-editor of Inequality.org at the Institute for Policy Studies and has been the lead author on all 23 of the Institute’s annual “Executive Excess” reports, explained to me how the Portland tax on excessive CEO income will be levied:
Publicly traded companies with extreme pay gaps will pay a surtax on top of the city’s current business license tax. The surtax will be 10 percent of the business tax liability for companies with a CEO-worker pay ratio of more than 100-to-1 and 25 percent for companies with a ratio of more than 250-to-1. The Portland government has identified more than 500 corporations that do enough business in the city 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 increasingly lopsided CEO-to-worker pay ratio has become a stinging symbol of income inequality in the United States, but Portland is the first city to take a local approach to taxing extremely excessive executive pay. Portland’s action refutes the notion that only federal legislation could inhibit ballooning CEO pay. The IPS news release notes, “according to the Portland revenue department, most large US cities have tax structures that allow for a similar CEO pay surtax.”
IPS also speculates that Portland’s action may enable federal legislation, although it’s hard to see the master of tax invasion, billionaire Donald Trump, encouraging such action. In the age of Trump, we are going to be relying more heavily on local government to achieve progressive goals. As Anderson told me:
By linking this new CEO-worker pay metric to local tax policy, Portland is demonstrating how policymakers can act in a responsible way to narrow what has become a very dangerous economic divide. The Portland precedent will inspire many other cities and states — and maybe even the federal government — to take similar action.
By investing the revenue from the tax in services for the poor and middle class, the surtax will further reduce inequality. Revenue from the Portland surtax is estimated by the city to range from $2.5 million to $3.5 million per year. And as Trump and Republican members of Congress push tax cuts for the wealthy and corporations that will gut the federal budget, states and cities will need to do more to find new sources of revenue that are fair and progressive.
Portland is attacking income inequality in two ways, by taxing grossly excessive CEO income and by investing the revenue that it will generate in services for those in need.
It’s the kind of creative local idea we are going to need to advocate for, particularly during this time of progressive political eclipse on the federal electoral level. As Anderson emphasized to BuzzFlash, “By adopting this surtax, Portland is taking a stand against one of the key drivers of extreme inequality — a broken CEO pay system that benefits the very few at the expense of the rest of us.”