The Portland City Council voted Wednesday to raise the business tax on companies that pay their CEOs more than 100 times what their average worker makes.
Portland Commissioner Steve Novick crafted the measure. He believes it is the first tax in the United States directly targeting income inequality.
“This explosion of inequality that we’ve seen in the past 50 years is not something that has to happen. It’s something that’s been allowed to happen,” he said.
The new surtax will apply to about 550 publicly traded companies that do business in Portland and pay the city’s business income tax, according to the city Revenue Division.
Companies will only have to pay it if their CEO makes more than 100 times more than their median worker pay.
Companies with CEOs who earn more than 100 times what their median worker makes would pay an additional 10 percent surcharge on the city’s 2.2 percent business tax rate, while those with a CEO-worker pay ratio of 250 or more would pay an additional 25 percent. That would amount to raising their city business tax rate to 2.42 percent or 2.75 percent.
Novick, who did not win re-election in November and will step down in January, has said he was inspired by French economist Thomas Piketty and his 2015 book “Capital in the 21st Century”, as well as by a similar tax proposal introduced in the California state Legislature.
“Part of the idea here is to simply send a signal about social acceptability, that it is not socially acceptable to have these huge gaps,” Novick said.
Mayor Charlie Hales and Commissioner Amanda Fritz voted in favor of the business surtax. Commissioner Nick Fish was absent for the vote.
Commissioner Dan Saltzman voted against the measure and said the city shouldn’t raise the business tax unless it has an urgent need for the revenue.
Under Mayor Tom Potter, the Portland City Council imposed a business income surtax as an emergency measure to raise money for the Portland Public Schools District. That tax expired in 2008.
“I really believe that the headroom under the business income tax should be preserved for a true unforeseen situation, which given Oregon’s revenue situation, given local governments revenue situations, are never too far around the corner,” Saltzman said.
The Portland Business Alliance has opposed the measure, and questioned whether it is a fair and effective strategy to address income inequality. In a written statement, PBA President Sandra McDonough called the tax “an empty gesture.”
“A better approach for the city would be to work with business leaders on a strategy to grow and retain family-wage jobs in our city,” she said.
The city’s Revenue Division estimates the surtax would generate about $2.5 million of new revenue each year, starting in fiscal year 2017-2018. Novick and the council have said the funding would likely go the Joint Office of Homeless Services, which serves Portland and Multnomah County.
The new surtax on pay inequality hinges on information companies will soon have to disclose to the federal Securities and Exchange Commission.
In 2015, the SEC adopted a rule requiring companies to disclose the ratio of their CEO pay to employees pay. Congress mandated the pay ratio disclosure as part of the Dodd-Frank Act.
The SEC will require companies to disclose their pay ratio starting in 2017, and Portland is scheduled to begin collecting the tax in response to those disclosures.
But the election of Donald Trump and the Republican Party’s wins in Congress could complicate Portland’s effort to impose the tax. Trump has said he wants to “dismantle” the Dodd-Frank regulations.
“It has been floated by people currently setting the agenda,” Novick acknowledged. “I think that this would be a particularly difficult part of the law to repeal.”
The business tax is just one of several significant pieces of left-leaning legislation the council is pushing through before Novick and Hales leave office at the end of the month.
The council is also preparing to pass an inclusionary zoning proposal next week, and a ban on new fossil fuel infrastructure.
And at Wednesday’s hearing, Commissioner Amanda Fritz cleared the way for a vote on publicly-financed campaigns for Portland City Council seats.
In response to criticism from the city auditor and others, Commissioner Fritz agreed to significantly delay the proposed roll-out of the new system, funding it in the 207-2018 city budget with the first matching funds awarded in 2019 for the 2020 elections.
Fish and Saltzman introduced an amendment asking the council to refer the campaign funding proposal to voters in May instead of adopting it by council vote.
“We’re better when we rely on our voters to affect major changes that cost them at their pocketbooks,” Satlzman said. “I think we build trust and credibility with our public when we do it that way.”
But Fritz, Hales and Novick defeated that amendment, setting the council up for a 3-2 vote next week approving the publicly-financed campaign system.
“Obviously, I’ve been working on this, as part of the system, for 11 years,” Fritz said, tears catching in her throat. “This is going to open things up, and that’s what we need.”
Editor’s note: an earlier version of this story incorrectly identified the city commissioners who sought to refer the campaign funding measure to voters.