Portland CEO tax makes national news

taxesWall Street Journal
Editorial Board,
Nov.16th, 2016

Portland, Oregon is famous for its modish devotion to organic foods and craft beers. Now the city is embracing a new trend that could leave local workers with a very bitter aftertaste. It’s a fresh tax on business and it could be coming to a city near you, thanks to misguided rules from the U.S. Securities and Exchange Commission.

Next month Portland’s city council will vote on a plan to raise income taxes on public companies that pay their CEOs a high salary relative to a typical workers’ pay. Specifically, business tax bills would rise 10% at firms where the CEO makes 100 times what the median worker does, and 25% at companies with a CEO making 250 times the median.

The bill’s sponsor, Portland Commissioner Steve Novick, says economist Thomas Piketty has shown that CEO pay is a driving force behind income inequality. But it’s not clear how deeply Mr. Novick has studied the issue. “Like most other lefties, I bought [Mr. Piketty’s book], but haven’t read it all,” Mr. Novick recently told the Huffington Post.

Mr. Novick tells us that he wouldn’t be doing this if not for the SEC, which last year ordered public companies to start publishing the CEO-to-median-worker ratio that Portland will use to apply the tax. We warned that this political act that has nothing to do with evaluating an investment would have negative economic consequences, and here they are.

Mr. Novick appears to have the votes in Portland and he’s hoping this tax idea will spread nationwide. We’re guessing he won’t be disappointed. But who’s really going to pay?

Portland aims to raise an additional $3 million per year by applying this tax to the more than 500 public companies that currently have some presence in the city and already cough up about $18 million annually in taxes. Is it possible some might decide to move? Mr. Novick says it’s “almost inconceivable” because they are already paying taxes and he believes the increase won’t be enough to drive them away.

Perhaps the greater threat is that such businesses now all have an incentive to employ fewer low-income workers. 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.

Mr. Novick thinks these companies should simply pay their workers more and reduce CEO pay. The commissioner also says that the chief executive’s pay is the one over which a business has the most control. But isn’t the market for CEOs a competitive market like other labor markets? Not according to what he read in the New York Times, Mr. Novick says.

From liberal newsrooms to the Portland city council to the SEC’s Beltway headquarters, liberals are enjoying the opportunity to show how much they care about income inequality. If they are merely creating a new incentive not to hire low-skill workers, should that be allowed to spoil their self-regarding mood?

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