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CEO Pay Ratio Tax

The CEO pay ratio disclosure rules might be some of the first Dodd-Frank Act mandates to be rolled back under the incoming Trump administration, but this potential rule is already having an effect.

On December 7th, 2016, the city of Portland, Oregon, passed an ordinance authorizing a surtax to the city’s business license tax for public companies doing business in Portland based upon their pay ratio disclosure.

A surtax of 10% of base tax liability will be levied if a company discloses a pay ratio of at least 100:1 but less than 250:1. Companies with a disclosed pay ratio exceeding 250:1 will face a surtax of 25%.  This is in addition to the current business license tax of 2.2%.

The latest statistics indicate there are approximately 550 publicly traded companies subject to this mandate in the city of Portland. The current revenue of the business license tax is $17.9 million.  The city projects the new surtax will net between $2.5 to $3.5 million, currently slated to be used partly to fund a city office devoted to homeless services.

It is likely that other cities will consider various bills concerning the pay ratio. In 2014 a bill was narrowly defeated in the California State Senate that would have raised the state tax on all public companies but reduced it for companies with a disclosed ratio less than 100:1. The Rhode Island State Senate passed a bill to give preference in state contracts to companies with small differences between pay ratios, which was ultimately defeated in the House. Massachusetts is also considering enacting similar measures. It is likely a number of other cities and states will monitor this development closely and look at the use of such taxes to help narrow a growing income gap, especially states that have raised the minimum wage.