Portland City Council, Oregon, US, is to impose a surtax on publicly-traded organisations that pay chief executive officers (CEOs) 100 times more than the median employee.
The pay ratio surtax is applicable for publicly-traded organisations that operate in Portland, and are subject to the US Securities and Exchange Commission (SEC) pay ratio reporting requirements, effective from 1 January 2017. The new tax will also come into effect from this date and be based on the information provided in the pay ratio reports.
The SEC pay ratio disclosure rule requires public organisations to report on the ratio of compensation of the organisation’s CEO to that of the compensation received by the median employee.
The pay ratio tax, which will be paid in addition to Portland’s current 2.2% business license tax, will see a surtax of 10% of base tax liability imposed on an organisation that reports a pay ratio where the CEO earns between 100 and 250 times more than that of the median employee.
If the organisation discloses a pay ratio of 250:1 or more then a surtax of 25% of base tax liability will be imposed.
The revenue from the pay ratio tax, which is expected be between $2.5 million and $3.5 million annually, will accrue to Portland’s general fund, increasing funding for the services provided by the Joint Office of Homeless Services.
The new tax regime could impact on 550 publicly-traded organisations that currently pay the city’s business license tax.
Steve Novick, City of Portland commissioner, said: “When I first read about the idea of applying a higher tax rate to [organisations] with extreme ratios of CEO pay to typical [employee] pay, I thought it was a fascinating idea, the closest thing I’d seen to a tax on inequality itself.
“Extreme economic inequality is, next to global warming, the biggest problem we have in our society. The top 1%, and especially the top one-tenth of 1%, have a far larger share of wealth and income than they did 40 years ago.”