In an era of steep federal budget cuts, cities need extra revenue. And in an era of skyrocketing inequality and inflation, many workers need a raise. A proposal to increase Portland’s tax surcharge on companies with large pay gaps could help accomplish both — and encourage sounder business practices, too.
In 2016, Portland adopted the world’s first tax penalty on corporations that pay their CEO more than 100 times their median worker pay. Members of the U.S. Congress have introduced federal legislation modeled on the Portland precedent, and in 2020, San Francisco voters overwhelmingly approved a similar tax.
Portland’s surcharge has generated about $5 million a year for social programs. A “fair share tax” proposal by Councilors Mitch Green and Angelita Morillo would increase net revenue to an estimated $72 million by combining an increase in the surcharge rates with a small business tax cut.
Pay gap-related taxes give corporations a choice. They can either maintain huge gaps and contribute more revenue for public services — or they can avoid extra taxes by narrowing their gaps through increasing wages or reining in CEO pay.
This approach creates an incentive for corporations to return to the more equitable pay practices of times past. In 1978, average CEO compensation stood at 31 times average US worker pay, according to the Economic Policy Institute. By 2025, the CEO-worker pay ratio among S&P 500 firms had widened to 312 to 1, and average CEO pay had climbed to $22.8 million.
What explains this dramatic change? Not any dramatic improvement in CEOs’ managerial prowess, unfortunately. In fact, just the opposite appears to be the case.
As You Sow, a shareholder advocacy group, has consistently found that the most overpaid CEOs produced lower shareholder returns than the average S&P 500 company. An academic study of 1,500 large firms found a similar dynamic. The more CEOs got paid, the worse their financial performance.
A large body of research also shows that lower-level employees perform better when pay gaps are narrower. When bosses give workers crumbs while they’re feasting aboard yachts, it depresses employee morale and increases turnover rates.
With their relatively narrow pay gaps, small businesses and employee-owned cooperatives —our economy’s primary job creators — get a leg-up on their larger competitors as a result of pay ratio taxes. And the Portland legislation goes further by eliminating Business License Taxes for 18,000 local small businesses.
How would the proposed Fair Share Tax work?
Portland’s current business license tax stands at 2.6 percent of profits. The new graduated
surtax rates would start at 25 percent of the business tax liability for companies with a CEO-worker pay ratio between 50 to 1 and 75 to 1. The top surcharge rate of 500 percent would apply to companies with a ratio of more than 500-to-1.
For example, if a company made $10 million in local profits and has a pay ratio of 50 to 1, their surtax increase would amount to a modest $65,000 – less than 1 percent of profits. If that same company had a pay ratio of 500 to 1, their surtax increase would be about $1.2 million.
That top surcharge rate would apply to a number of mega-corporations operating in Portland.
Best Buy, Chipotle, Dollar Tree, McDonald’s, Starbucks, and Target, for example, all have CEO-worker pay gaps far in excess of 500 to 1. Starbucks has the largest divide. Their CEO, Brian Niccol, raked in nearly $31 million in 2025 — 1,794 times as much as the coffee chain’s $17,279 median pay.
Some opponents will no doubt claim that companies will flee the city if the council adopts the proposed increase in the existing surtax. But the surtax only applies to companies that are making a profit in Portland, and so why would they leave?
If anything, the proposal will strengthen the business climate by generating revenue for public investments in infrastructure and a healthy and well-educated labor force. This local action would also boost support for similar pending proposals in several state legislatures and the US Congress.
Everybody would win — except, perhaps, the overpaid CEOs.
Steve Silberstein is an investor who currently serves as a trustee of a public pension fund in the state of California and previously served as an executive of a San Francisco Bay Area software firm that he co-founded in 1978.
Sarah Anderson is an executive compensation analyst at the Washington, DC-based Institute for Policy Studies.