The Advisors' Blog

– Liz Dunshee

When it comes to local “pay ratio” taxes, Portland is the only jurisdiction to-date that’s enacted this kind of surcharge. For businesses that earn income in that city, there’s a 10% surcharge if their pay ratio exceeds 100:1 and a 25% surcharge if their pay ratio exceeds 250:1. This blog from Cooley’s Cydney Posner notes that the median pay ratio for the Russell 3000 is 70:1 and summarizes some of the early results from Portland’s “experiment”:

According to this article in Bloomberg BNA, about 500 public companies have now been notified that they will be facing the surcharge because they earned income in Portland and reported pay ratios in their proxy statements that exceeded the thresholds. In one example provided on the city’s website, a public company that pays Portland $250,000 in regular business license taxes that reports a pay ratio of 1,000:1 would have to pay a surtax of $62,500 (25% of its business license tax), resulting in a total tax due to Portland of $312,500. This year, the city expects to raise about $3 million from the surtax, which is “earmarked for Portland’s affordable housing efforts and for funding its police force and fire stations,” according to a current Portland Commissioner. The Commissioner also indicated that, “the penalty is meant as a way to help tackle income inequality, [and she] hopes that it sparks an increase in what companies pay their average employees.”

Bloomberg observes that supporters and opponents alike admit that the surtax is “not likely to put a dent in the coffers of most companies, and whether it spurs changes in corporate compensation practices is likely to hinge on this strategy’s widespread adoption. ‘As a practical matter, it’s still a drop in the bucket for these companies,” [the Commissioner said], ‘Little Portland is not going to make much of a difference on its own.’” According to the Mayor of Portland, quoted in this NYT article, the city has “‘a habit of trying things…; maybe they’re not perfect at the first iteration. But local action replicated around the country can start to make a difference.’”

But as I blogged last month, “pay ratio” taxes don’t seem to be taking off…