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Portland’s New CEO Tax Is Designed To Fight Income Inequality

If you pay your CEO 100 times more than your median workers, you’re going to pay extra in taxes.

Portland’s New CEO Tax Is Designed To Fight Income Inequality
[Photo: H. Armstrong Roberts/ClassicStock/Getty Images]

In 1965, CEOs at large U.S. companies made an average of 20 times more than their workers. By 2014, they were making 300 times more (a handful make at least 800 times more).

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But now, in Portland, Oregon, any corporation that pays its CEO at least 100 times more than median workers will have to pay an extra 10% tax if they want to do business in the city, starting next year, when a new S.E.C. rule requires companies to disclose the pay gap between CEOs and workers. Companies that pay CEOs more than 250 times more than workers will have to pay a 25% surcharge.

[Photo: H. Armstrong Roberts/ClassicStock/Getty Images]

“I believe that income inequality is the greatest threat facing us, second only to climate change,” says Portland city commissioner Steve Novick, who proposed the new tax rule. “Portland’s new tax surcharge isn’t the only way to address income inequality, but I do think that those with the power to take small steps to address this problem should do so.”

Portland is the first city or state in the country to link CEO pay to business taxes. In California, the senate considered a similar bill in 2014 but failed to pass it.

“I think I was able to succeed in getting this policy passed in Portland because a group of advocates came together and made a compelling case that the surtax is the right policy at the right time to address a serious problem locally and nationally,” Novick says.

Novick proposed that the revenue from the new surcharge–an estimated $2.5 to $3.5 million annually–be used to tackle homelessness in Portland. The city has a new Joint Office for Homeless Services designed to get at least 4,300 people off the streets, and help another 5,600 people avoid homelessness. The city committed $15 million, but has a funding gap of $3.5 million.

As the new SEC rule takes effect on January 1, Novick thinks that other cities are likely to follow Portland’s example, and that, in turn, could further pressure corporations to reconsider astronomical CEO pay (or, alternatively, pay their lowest paid workers more).

“Portland’s new surtax will give companies an incentive to narrow the economic divide within their own firms—by lowering CEO pay and/or by lifting up their workers’ wages,” he says. “Of course, this reform alone will not close our nation’s economic divide. But it does send a powerful message that our community is ready to take a stand against the extreme inequality that harms all of us.”

About the author

Adele Peters is a staff writer at Fast Company who focuses on solutions to some of the world's largest problems, from climate change to homelessness. Previously, she worked with GOOD, BioLite, and the Sustainable Products and Solutions program at UC Berkeley.

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