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What is the Overpaid Executive Tax? San Francisco voters approve measure to combat pay inequality

Companies whose top executives earn 100 times more than their typical local worker will be made to pay 0.1 percent surcharge in their annual business taxes

Voters in San Francisco have approved, in large numbers, what is believed to be America's first tax aimed at combating pay inequality to address the growing wage gap between chief executives and workers. Under the "Overpaid Executive Tax", formally called Proposition L, any firm that conducts business in San Francisco and has a top executive earning 100 times more than their “typical local worker” will be charged, tweeted Matt Haney, a member of SF’s board of supervisors. 

He said: “San Francisco passed Prop L--a first in the nation Overpaid Executive Tax (CEO tax) on any corporation that pays their top executive over 100x their typical local worker. With over 65% of votes, it won in nearly every precinct. Voters are demanding we take action on inequality.”

According to a report that came out in NBC News, companies whose top executives earn that much more than the local workers must pay 0.1 percent surcharge on their annual business taxes. The surcharge goes up by 0.1 percent per factor of 100 (The surcharge rises by 0.1 percent per factor of 100). Top executives who are earning 200 times more than the average worker pay 0.2 percent tax and so on. 

The voters came out overwhelmingly to embrace this tax at a time when the issue of CEO compensation is surging. According to a study by the Economic Policy Institute, DC, chief executives' compensation went up by 14 percent in 2019 to over $21 million. Currently, chief executives bag 320 times more than a typical worker.  

The latest verdict covers a range of companies. Portland also has a similar measure which was passed a couple of years ago but that tax applies only to companies that are publicly held. The San Francisco ruling affects both privately and publicly held firms and besides affecting big local firms like Salesforce, it also impacts big corporations that operate businesses in the city, like JP Morgan and Visa, the NBC article said. 

In a following tweet, Handsey said the new measure would generate up to $140 million that could be used to support the public health systems that have been hit by inequality. “The measure will bring in up to $140 million, which we will use to support our health and public health systems, which are deeply strained from the consequences of inequality. We will hire nurses, social workers and emergency responders, and expand access and treatment,” he said. 

Former SF mayoral candidate voices concern

One municipal analysis, however, said that the tax could raise approximately between $60 to $140 million but cautioned that the amount could vary from year to year. 
There have also been voices counter to the tax plan. Richie Greenberg, a political commentator and a former mayor candidate of SF, said in a filing to the city that the proposition will harm businesses in the city. 
 
“Companies would reduce or stop hiring low-level employees as an answer to this measures, if it should pass. Such a tax would most likely prevent the attraction of new businesses to relocate to San Francisco, at such a time as we are seeing unprecedented economic downturn due to the pandemic,” he said.