Weighing Taxes on High-Income Employees


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Taxing companies that pay their chief executive officers high salaries or taxing high-income households are two ways that cities are using or considering in order to generate revenue.

Portland, Ore., in December passed a first-of-its-kind ordinance that imposes a 10 percent surtax to the business license tax on publicly traded companies that pay their chief executives more than 100 times what a median worker earns annually. The ordinance imposes a 25 percent surtax on CEO pay that is 250 times more than what a median worker earns.

In Rhode Island, Rep. Aaron Regunberg (D) introduced a bill (H. 5141) that was similar to the Portland law. The Rhode Island bill would impose a 25 percent surtax on CEO pay that is 250 times more than what a median worker earns and a 10 percent surtax on CEO pay that is 100 times, but less than 250 times, more than a median worker’s income.

A law similar to Portland’s is in the drafting stages in San Francisco, a city official told Bloomberg BNA. Details of the law are to be determined.

The success of a CEO tax is dependent on the implementation of a final rule adopted by the Securities and Exchange Commission that requires public companies to disclose the ratio of CEO compensation to the median compensation of employees.

Although the rule requires employers to provide disclosure of pay ratios for first fiscal year starting Jan. 1, 2017, or later, the agency in February decided to reconsider its implementation because some companies experienced unanticipated compliance difficulties that may prevent them from meeting the reporting deadline. 

If the Trump administration eliminates or significantly limits the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the pay-ratio reporting, cities may not have the data necessary to figure the tax.

The Seattle City Council unanimously approved a resolution May 1 to pass by July 10, 2017, a progressive income tax ordinance targeting high-income households. Still to be determined are tax rates, the types of income that would be taxed and the threshold above which income would be taxed.

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