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The effect of the Portland CEO tax

eric-fruits [1]By Dr. Eric Fruits,
Oregon Economist
On Demand Newsletter [2]

In the past week, I’ve been getting emails and texts from folks all over asking: “What’s up with Portland?” Thanks, Neil Cavuto [3].

Here’s what’s up. Last week, Portland passed a first-in-the-nation income tax surcharge on companies whose CEOs earn more than 100 times the pay of the median worker in the firm. The tax is on companies that are subject to a new Securities and Exchange Commission rule requiring publicly traded companies to report the ratio of CEO pay to its median pay beginning in 2017. Thanks, Dodd-Frank.

It is estimated that the measure will ultimately raise about $2.5 million annually from some 550 companies that pay Portland’s Business License Fee, which is a nice was of saying “business income tax.”

The pitch from the city commissioner who pushed the ordinance is that the surcharge is designed to reduce income inequality. It’s supposed to punish high-income CEOs and the money raised is promised to go to fund affordable housing.

In reality, most of the CEOs targeted in the tax don’t live in or near Portland and the money actually goes into the city’s general fund to be spent however council sees fit. So the tax really won’t do anything to reduce CEO pay, and the money collected will do nothing to raise the incomes of the poor.

A more interesting development may come with the new Congress. Republicans have been targeting Dodd-Frank for a massive overhaul. It wouldn’t take much to strike the pay ratio reporting from the law. Then—poof—the tax has no monitoring mechanism.

So, why would a sitting city commissioner spend so much effort on an empty gesture poking business in the eye?

What if I told you that this commissioner was the first incumbent commissioner in decades to lose his city council seat—by a whopping 10 percentage points—to an unknown newcomer. Sometimes policy is driven by politics.