In the City of Roses, Fight Against Inequality Might Turn into Nightmare

This article was featured in our weekly newsletter, the Liberator Online. To receive it in your inbox, sign up here.

When the federal government comes down hard on companies, all states suffer. But when state lawmakers pass laws that hurt businesses, these very companies are often forced to move elsewhere, leaving consumers and workers in that state in a bad shape. Who gains is the worker whose state has a more business-friendly set of rules.

Sometimes, those policies are enacted on the local level. Forcing companies to move between cities, taking their jobs with them.

In Portland, Oregon, workers are about to lose. Big time. Unless changes recently enacted are brought down promptly.

According to Fortune magazine, the city has begun fighting a war against income inequality, whether locals like it or not.

Recently, Portland’s City Council voted to create a new tax that would hurt businesses whose chief executives earn more than 100 times what the company’s average employee earns. Breaking a record, Portland has essentially made it a crime for a company to set its own rules regarding what they consider to be fair compensation.

If a company whose CEO makes 100 times more than his or her average employee and it decides to remain in Portland, it will be forced to pay an extra 10 percent surcharge on the 2.2 percent business income tax imposed in the City of Roses.

According to Fortune, “[c]ompanies with CEOs who make 250 times will pay an additional 25” percent.

By using the coercion of the state to pursue a Quixotic goal such as absolute equality, city officials will undoubtedly see their radical move backfire.

As assistant professor of entrepreneurship Per Bylund explained on Mises.org, the only possible outcome is far from what Portland residents imagine.

Instead of helping to reduce inequality, the city is effectively making individuals less equal by imposing extra burdens on companies that will push job creators away. And while companies will have some “wiggle room” when calculating the median employee pay — giving the city the illusion that the new rules are working — Bylund explains that in the long run, “many businesses who were considering [moving to Portland] will not,” while established Portland businesses will end up moving out sooner, “and in greater numbers than otherwise would be the case.” Bylund also adds that, as business begin to move out and few, or perhaps no companies decide to move in, larger local firms will find it hard to hire a CEO. As a result, management efficiency hurts, causing the firm to become less efficient, and adding an extra burden on the consumer. Over time, these companies will tend to stop hiring, which will also lead to more unemployment.

Instead of allowing individual companies to set their own rules, officials are simply making the inequality issue worse by ruining locals’ chances at obtaining a job or launching new companies. Is that what Portland officials really want?