That has the potential to confound the tax’s purpose. “We absolutely respect the will of the voters,” added Cheng. “We’re not planning a legal challenge. But we are deeply concerned about the long-term economic impacts of Prop L and what it will do to worsen SF’s current unemployment crisis.”

What economists say

Kathryn Edwards, a labor economist with the nonprofit think tank RAND Corporation, says the big question about Proposition L is how it impacts the hiring incentives of companies. If the tax causes companies to hire fewer workers or let go of low-paid ones in order to keep down their ratio, then it probably won’t have been worth it. But it is also possible the tax will generate revenue for the city, while having little impact on hiring. That money can be used to improve public services.

Fundamentally, Edwards believes Proposition L is a response to the US federal government’s neglect of inequality. “[Local governments] have had to pioneer policies because of inaction at the federal level,” she said. “It takes guts to try and tackle a problem of this magnitude.” Proposition L is an experiment that we can learn from, she thinks, and if successful could be used at the state and national level. Edwards also thinks increases to the minimum wage, increased unionization, and stronger anti-discrimination practices would help fix the problem.

Even given federal inaction, some economists think going after CEO pay is an ineffective poor approach to solving inequality. Alex Edmans, an economist at the London Business School, argues in the Harvard Business Review that corporate boards structure CEO pay in ways that allow them exorbitant compensation without doing whats best for the company. He thinks that policies that improve corporate governance would be more efficacious than pay caps at delivering more reasonable CEO pay.

Gabriel Zucman, an economist at the University of California Berkeley, is one of the world’s leading researchers studying global inequality. Zucman is a co-director of the World Inequality Database, a repository of data on inequality that shows the top 1% of earners are gaining a larger share of income across most major economies in the world (pdf), including the US, China, and Germany. His work finds that tax policy is one of the reasons for the increase in inequality (pdf), with the richest people in the world paying less tax due to lower top marginal income taxes and the increasing use of tax havens.

Zucman sees Proposition L as a reaction to the increasing disparities between CEOs and the average worker, but thinks higher income taxes are the ultimate way to solve the problem. “Given the explosion of CEO pay, Proposition L is perfectly understandable,” Zucman told Quartz over email. “Perhaps this (and similar measures in other cities or states) will ultimately pave the way for changes in federal tax policy.”

The most effective way to regulate top-end inequality, he says: sky-high top marginal income tax rates to match sky-high income.

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