TAXES AND SPENDING
Fight New Taxes or Increases in Existing Taxes
Probably the biggest reason for decimation of Philadelphia’s tax base has been the jobs chased out of the city by our high tax rates and our irrational tax structure.
To paraphrase Paul Levy of the Center City District, we have the perfect tax structure for mid-19th Century Philadelphia. At that time, the economy of the city was driven by manufacturing. Manufacturing businesses had to be along the river or rail lines and within walking distance from their workforce. Manufacturing was very labor intensive. There was no moving your factory to Blue Bell. Taxing jobs and businesses made some sense.
The economics of the region changed but our tax structure did not evolve. We have a more mobile economy and service industries have become dominant, while less manufacturing takes place. Drive down City Line Avenue to see what happened.
Reduce Tax Rates to Attract Jobs
Tax rates also need to be reduced, particularly the wage and business taxes. Through the Rendell and Street administrations, there were incremental decreases in the wage tax. That went too slow, but over time the approximately one percent decrease was significant. We now have more Wage Tax revenue than we did when the rate was higher, and although it is not so simple as to attribute that rise to lowering the Wage Tax, it was certainly a factor. Mayor Nutter and the present counsel stopped that progress and went on a tax-raising rampage.
We need to go back to a predictable plan to lower the wage tax. It has to be incremental, but faster than the past decreases under Rendell/Street. To the extent that revenue estimates do not support necessary spending with a lower wage tax, it makes sense to incrementally increase the Property Tax, which is not nearly as destructive to job creation as wage and business taxes.
Implement the Recommendations of the Tax Reform Commission
The 2003 Tax Reform Commission issued a report for comprehensive restructuring of our taxes. A good synopsis of their work can be found at: http://economyleague.org/files/File/regionalismTAX_REFORM.pdf
They did not recommend changes to city spending that might decrease the amount of revenue needed, but looked at the tax structure in essentially a revenue-neutral way. Even with the passage of a decade I think that the changes that they recommended hold up.
Their recommendations were to:
-Eliminate the Business Privilege Tax
-Reform the business tax so that it levels the rates paid by companies within the city and businesses outside the city, as well as between incorporated and unincorporated businesses. They would also help startups manage early operating losses
-Reduce the Wage Tax.
-Adjust the Real Estate Tax to put more weight on the value of the land rather than the value of the improvements to the property.
-Adopt a budget-based Real Estate Tax system requiring the Mayor and City Council to set real estate tax rates each year after reviewing assessment estimates.
Other than adopting AVI and small decreases in the wage tax, nothing else was implemented, and AVI was adopted with City Council kicking and screaming.
The plan could probably use some tweaking, but since it is a comprehensive plan that is to some degree on the table, I would support introducing it as a package. The plan then was to phase in the changes over ten years. Perhaps the time period could be shortened, but you cannot simply do a major restructuring in a year. People have made plans and dramatic changes could cause gyrations in the amount of revenue coming in in any given year. Some of the other nuisance taxes, like the cigarette tax, the sales tax and the tax by the drink should also be eliminated.
Reduce the Size of Government and Change Spending Priorities
In order to reform our tax structure, spending must be reduced. In order to do that we need to prioritize. Philadelphia cannot be all things to all people. City government cannot solve everyone’s problems. The core municipal responsibilities are public safety, sanitation, public education and the maintenance of the transportation and utility infrastructure. We need to have those functions done well, and should not spend much on anything else until reform in the tax structure has demonstrated what revenue can be expected.
National defense is a job for the national government. Similarly, health and welfare is the responsibility for the state and federal governments. Since Philadelphia is both a city and county, it does have some responsibilities to carry out some of this work on behalf of the state, and this is mostly paid for by the state or federal governments and the city simply provides the services.
Philadelphia, however, goes much further and runs many non-mandated programs. If Philadelphia takes these responsibilities, we simply attract the problems. For years the suburbs handled their homeless problems by sending them to Philadelphia. If the state or federal governments aren’t paying for it, Philly can’t. “Program” is a dirty word. If we eliminated all of the well-meaning programs in the budget, the average taxpaying citizen would not notice. When Mayor Nutter wants to increase taxes, what does he threaten? Police. Fire. Libraries. The last places we should cut.