Only in Portland: Mindless CEO Taxes


Eric Fruits, an Oregon economist I admire, made some illuminating comments today on Portland’s misguided attempt to tax CEO pay:

Last week, Portland passed a first-in-the-nation income tax surcharge on companies whose CEOs earn more than 100 times the pay of the median worker in the firm

The tax is on companies that are subject to a new Securities and Exchange Commission rule requiring publicly traded companies to report the ratio of CEO pay to its median pay beginning in 2017. Thanks, Dodd-Frank.

It is estimated that the measure will ultimately raise about $2.5 million annually from some 550 companies that pay Portland’s Business License Fee, which is a nice was of saying “business income tax.”

The pitch from the city commissioner who pushed the ordinance (Portland City Commissioner Steve Novick) is that the surcharge is designed to reduce income inequality. It’s supposed to punish high-income CEOs and the money raised is promised to go to fund affordable housing.

In reality, most of the CEOs targeted in the tax don’t live in or near Portland and the money actually goes into the city’s general fund to be spent however council sees fit. So the tax really won’t do anything to reduce CEO pay, and the money collected will do nothing to raise the incomes of the poor.

A more interesting development may come with the new Congress. Republicans have been targeting Dodd-Frank for a massive overhaul. It wouldn’t take much to strike the pay ratio reporting from the law. Then—poof—the tax has no monitoring mechanism.

So, why would a sitting city commissioner spend so much effort on an empty gesture poking business in the eye?

What if I told you that this commissioner was the first incumbent commissioner in decades to lose his city council seat—by a whopping 10 percentage points—to an unknown newcomer. Sometimes policy is driven by politics.

Honey, our paychecks are shrinking

It was a lofty goal.

One of the principal goals of the Oregon Business Plan when it launched in 2002 was to raise Oregon’s per capita personal income above the national average by 2020.


So much for that dream.

Oregon’s per capita personal income in 2013, total personal income divided by total population, was 90.3 percent of the U.S. average, which was actually down from 2001, when it was 94.6 percent.*

Oregon’s per capita income has grown for the past three years, and that’s reason for optimism, but so has the per capita income in other states, so Oregon is still lagging behind.

Eric Fruits, a faculty member at Portland State University, warns against braking out the bubbly over Oregon’s income growth, even though it put Oregon 15th in personal income growth among the United States and the District of Columbia. That’s because, he argues, over the long run Oregon’s per capita income growth has lagged the rest of the U.S. by two to four tenths of a percentage point and the difference compounds over time.

“Even the tiniest drags on the economy can compound over time such that a state that begins almost nine percent richer than the rest of the country can end up decades later being nine percent poorer than the rest of the country,” Fruits wrote recently.

Equally troubling is that behind the per capita income numbers are some discouraging data on Oregon’s and the nation’s changing workforce.

Oregon’s job growth in 2013, during which its job base grew by 2.4 percent and it added about 39,000 jobs, was one of the fastest in the country. It was exceeded only by North Dakota and Florida.  If the pace continues this year, Oregon could recover all the jobs lost in the recession before 2014 ends.

Already, the country as a whole has regained all the jobs lost during the Great Recession, though it took six and one-half years. But consider that the country’s population has grown by about 15 million since the Great Recession began and the potential workforce has grown as well.

Also, consider the types of jobs that are being created.

At the start of 2008, a private-sector worker earned $818.31 a week. In April 2014, almost six and one-half years later, that figure had grown to $838.70, just $20 a week more.

While the economy has been adding jobs, the new jobs are not enough to keep up with population growth and too often aren’t the solid middle class jobs we need for the overall economy to thrive.

“Although employers added jobs in a broad range of industries, the bulk of new jobs added are found in a handful of industries known for low wages—accommodation and food services, temporary help services, retail trade, and long-term health care, ” the left-leaning Center for American Progress notes.


If Oregon really wants to advance relative to other states, we need more firms selling lots of products, hiring lots of people, and paying high wages to generate the gains that are needed across the state, the Oregon Business Plan recently noted.. That means we need to start more, grow more, recruit more and retain more highly productive companies in a variety of sectors across the state.



*Per capita personal income

National        Oregon

2002       $31,481         $29,400

2003       $32,295         $30,144

2004       $33,909         $31,597

2005       $35,452         $32,542

2006       $37,725         $34,644

2007       $39,506         $35,796

2008       $40,947         $36,772

2009       $38,637         $35,621

2010       $39,791         $35,869

2011       $41,560         $37,744

2012       $42,693         $39,166

2013       $44,543         $40,233


*Source: U.S. Department of Commerce, Bureau of Economic Analysis; Oregon Employment Department, WorkSource Oregon