"It just quietly brings in $3.5 million to $4 million a year."A rainbow pops out under dark rain clouds over the Willamette River in downtown Portland, Ore., on May 11, 2017.Don Ryan / AP fileNov. 27, 2020, 11:00 AM UTCBy Cyrus Farivar

To hear Portland, Oregon, City Commissioner Amanda Fritz tell it, there’s no reason other cities shouldn’t do what Portland did back in 2016. Any companies with presences in Portland that have highly paid CEOs are taxed more.

That year, the Portland City Council passed a local law imposing a tax on all large publicly traded companies with highly paid CEOs if they have a presence in Portland. The city defined “highly paid” as the top executive’s making 100 times the median pay for workers. While Portland officials won’t say which companies are paying the tax, citing privacy reasons, it’s likely that many large U.S. companies that do business in the city, like Starbucks and McDonald’s, are footing the bill.

The modest tax is making a small but meaningful contribution. The tax raised $3.5 million in 2017 and $4 million in 2018. The city expects to collect a comparable amount for tax year 2019. The funds pay the equivalent of 60 first-year police officers’ annual salaries.

“Having $3.5 million more than we would have otherwise had is very helpful,” Fritz said, referring to the amount the city brought in during tax year 2017, the first year the surtax was collected.

But some academics said that the tax has little to no impact on paying the city’s bills and that it fails to address the broader wealth gap.

“They don’t raise much revenue, they don’t appear to impact CEO pay, and they don’t appear to provide much benefit for other workers,” Samuel Brunson, a tax law professor at Loyola University Chicago, said in an email. “To the extent cities want to address inequality, it seems to me that there are more direct and effective ways to do it.”

Still, Portland’s wealth tax is something other cities are trying to copy. San Francisco just passed its own version of the law, approving a similar surcharge on both publicly and privately held companies. In July, Seattle passed a related payroll tax, targeting large companies like Amazon, which is headquartered there. Portland’s law is one of the few blueprints other cities have for what the effectiveness of wealth taxes could be.

Narrowing inequality

The creation of Portland’s law was largely driven by Steve Novick, who served on the City Council in 2016 and is now a staff attorney with the state Justice Department. Novick cited the influential work by the French economist Thomas Piketty, whose 2013 book, “Capital in the Twenty-First Century,” sounded something of a clarion call for many progressives. Novick’s original purpose extended beyond simply making more money for the city. The aim was “to push companies to raise salaries for front-line workers and reduce compensations for CEOs,” he said. “If enough jurisdictions did this, shareholders would say, ‘Wait a minute!'”

But lawmakers seeking to imitate Portland quickly learn that it’s harder to get jurisdictions to embrace a wealth inequality tax than they might think. Rep. Mark DeSaulnier, D-Calif., who represents most of Contra Costa County in the San Francisco Bay Area, pushed for similar legislation in Congress as recently as September. Before that, he pushed to pass similar legislation as a state representative. But his measures haven’t gone anywhere for now.

He compares the efforts to early attempts to regulate smoking. In 1990, San Luis Obispo, California, became the first city anywhere in the world to ban smoking in all public buildings, including bars and restaurants.

“I could see that most of the urban areas would have this in five to 10 years,” he said, speculating that taxes on highly paid CEOs would have widespread support in Democratic-controlled cities. “It’s not a huge amount of money. But it’s pretty much free money.”

Funding sources

Portland targets a company if its top executive makes 100 times the company’s median wage, as measured in a “pay ratio,” a figure disclosed in publicly traded corporations’ filings with the Securities and Exchange Commission. If the company meets the standard, the city gets an additional 10 percent on business taxes already paid to the city.

Take, for example, Oregon’s best-known company, Nike, where the pay ratio is 550-to-1. That means CEO Mark Parker makes 550 times the median pay of all workers, which, according to Nike, was just over $25,000 a year in 2019.

In total compensation, including salary and the value of stock and other benefits, Parker earned nearly $58 million in 2019. Nike is likely to be one of the companies that have paid the Portland tax; the city refused to say how much Nike paid, citing privacy concerns.

Of the $4 million collected in the most recently completed tax year, 2018, the top 10 corporate payers contributed $2.141 million to the city’s coffers, said Thomas Lannom, the city’s deputy chief financial officer.

While the city won’t reveal how much companies have paid, city officials reported that the largest pay ratio was 3,660-to-1 — a ratio that matches exactly the amount Abercrombie & Fitch, the clothing retailer, disclosed in an April 2019 filing with the SEC. Abercrombie posted a gross profit of $2.1 billion in fiscal 2019 and a similar amount the year before.

The proceeds wind up in the city’s general fund, which is spent on costs like the police and fire departments and city parks, Novick said. The extra cash has allowed the city to spend a little more on other services.

“Homeless services have been a growing part of it,” Novick said. “We could always use more support services for homeless people. We could always use more shelter beds.”

Limited impact

Still, some economic and tax experts said, the tax, while well-intended, doesn’t make a substantial financial difference in those communities. After all, the few million dollars that Portland is receiving represents less than 1 percent of its annual general fund.

Mary King, an economics professor at Portland State University, said the amount is so relatively small that her university’s Northwest Economic Research Center didn’t include the tax in a study in May examining potential revenue sources to increase support for the city’s unhoused population.

“I don’t know that anyone has undertaken an analysis of the inequality tax,” King said in an email. “Perhaps others assume, as I do, that the impact of the tax is somewhere between none and imperceptible. It’s a very small tax, raising very little money, primarily from very large corporations that presumably don’t notice that they’ve paid it.”

But it’s still valuable to city officials trying to balance their budgets. When presented with King’s concerns that the tax isn’t big enough, Fritz said that every little bit helps and that the millions are similar to the money the city gets from cannabis-related businesses.

“Obviously, the professor has never tried balancing the city budget or has she been faced with laying off city workers,” Fritz said.