In Oregon, United States, Portland city council passed an ordinance on Dec 7th, becoming “the first jurisdiction in the country to use the tax code to address the phenomenon of outrageous CEO pay”. Publicly traded corporations will have to pay a surtax if they pay their CEO more than 100 times their median worker.
Portland official release reminds that “the U.S. Securities and Exchange Commission adopted a rule in 2015 requiring public companies to disclose the ratio of the compensation of its chief executive officer to the median compensation of its employees. Companies will begin reporting the data for tax years beginning in January 2017. The new disclosure will help shareholders better evaluate chief executive officer compensation based on performance, and it offers local, state, and federal governments a tool for establishing policies that address increasing ratios of chief executive officer to median worker pay.
“When I first read about the idea of applying a higher tax rate to companies with extreme ratios of CEO pay to typical worker pay, I thought it was a fascinating idea—the closest thing I’d seen to a tax on inequality itself,” Commissioner Novick said.
World renowned economist Thomas Piketty stated in his book, Capital in the Twenty-First Century, that “60 to 70%…of the top 0.1% of the income hierarchy in 2000-2010 consisted of top managers’ in large firms.” Piketty goes on to say that “the increase [in inequality in the United States] was largely the result of an unprecedented increase in wage inequality, and in particular the emergence of extremely high remunerations at the summit of the wage hierarchy, particularly among top managers of large firms.”
Novick believes that Piketty’s comments affirm the idea that extreme CEO pay is not just an eye-catching example of, but a major cause of, extreme economic inequality. “Extreme economic inequality is—next to global warming—the biggest problem we have in our society,” said Novick. “The top 1%, and especially the top one-tenth of one percent, have a far larger share of wealth and income than they did forty years ago.”
In an interview with the Guardian, Branko Milanović, a former lead economist at the World Bank and a professor at New York University who specializes in income inequality, reflected on Portland’s surtax: “What I find quite interesting is that it seems [to be] the first tax that targets inequality as such.”
For Milanović, the idea was novel because “it treats inequality as having a negative externality like taxing carbon emissions.”
The surtax will also benefit the city by generating an estimated $2.5 million to $3.5 million per year. Portland’s Revenue Bureau has identified more than 500 publicly-traded firms that do business in the city and therefore will be subject to the tax if their CEO-worker pay ratios are above 100 to 1. The list includes major corporations known for sky-high CEO pay, including Wells Fargo, Walmart and General Electric.
Portland City Council passed the surtax thanks to the support of Mayor Charlie Hales and Commissioner Amanda Fritz. Novick credits Steve Silberstein, a member of the Patriotic Millionaires, and U.S. Congressman Mark DeSaulnier, who first proposed the idea as a California State Senator, for developing the idea for the surtax. Novick also thanks Sarah Anderson from the Institute for Policy Studies for her expert advocacy and support for this proposal.
Without the partnership and innovation of these leaders, adoption of this surtax in Portland wouldn’t have been possible”, summarizes the Portland internet page.