Businesses in Portland, Ore. will now have to pay a surtax if their CEOs make too much more than their employees

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(This post originally appeared on The Washington Post)

Face it one-percenters, it’s just not cool to be wealthy anymore.  Especially if you run a business in Portland, Ore.

The Oregonian reports that the city council recently voted, by a three-to-one margin, to levy a tax surcharge on companies where the chief executive makes more than 100 times what workers make.

The bill was proposed by Steve Novick, a councilman and son of a union organizer and relies on the writings of French economist Thomas Piketty to “make the case that rising CEO pay is a major driver in increased inequality.”

The 10 percent tax will be based on a company’s adjusted net income where the CEO-to-worker pay ratio is 100-to-1.  The tax would increase to 25 percent for companies with pay ratios greater than 250-to-1.

A CEO at a company who is making more than $4 million a year when the average employee is making $40,000 would certainly raise eyebrows. This issue has certainly gained much attention, particularly after the 2009 financial crisis and the fact that CEOs at the country’s 350 largest firms now make more than 276 times the pay of a typical employee. But is it the government’s responsibility to penalize a company? Could this dis-incentivize companies from hiring lower waged workers?

An opinion piece last month in the Wall Street Journal thinks so, warning that “…by choosing not to hire entry-level workers when openings arise—or by choosing to let low-wage workers go when layoffs are required—companies can instantly reduce their ratios and avoid tax hikes, as well as bad publicity.”

The tax could raise $2.5 million for the city each year which Novick wants to direct towards low-income housing.


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