As I define it, The Deal is this: If you live in
So, while you grumbled about having the wage tax deducted from each paycheck, you took solace in the fact that if you moved across
Now that the city is going to full market value, the deal is broken. Without any commensurate decrease in other taxes, the average homeowner/wage earner in the city is about to be screwed vis a vis their suburban counterparts.
And, just to take that reasoning another step, if I am going to be paying as much in property tax in the city as I would in some suburban communities, then why not move to the burbs and escape the hassles of city living?
Unfortunately, for us chumps in the city, The Deal was never put down on paper. It's just an understanding -- maybe a justification -- city residents made when deciding where to live.
But, there are real numbers behind it. Let's not look at this macro, but go micro with specific examples.
Let's take a couple in their 30s, with two kids, who both have jobs and bring in $75,000 a year, all of it in wages.
Let's take our family and settle them in a $165,000 house in Havertown. The schools are good. There have back yards with room for the kids to play. They have their own driveway and there is no Parking Authority. It's paradise.
But, real estate taxes are higher there. With a $165,000 house, the couple would pay a total of $6,272 in property taxes, with the money apportioned among the township, county and the
There is no tax on income in the township, so their total local tax burden would be $6,447 -- or 8.6 percent of their gross income.
Let's set the same couple down in the city, in a rowhouse they bought in Bella Vista in 2005 for $485,000 (with a lot of help from Mom and Dad). Luckily for them, the appraised value of the house is low -- $109,000 -- so they paid $3,289.88 this year in property taxes.
So far, so good.
Now, we have to add the wage tax to the equation. It comes to $2,946 -- equal to 3.9 percent of their combined salaries. And we have to add the additional sales tax they pay in Philly (in the suburbs and the rest of
Total local tax bill: $6,443 -- basically equal to their tax burden if they lived in Havertown.
Now, let us fast forward to that happy day (sometime in the fall) when they get their new evaluation from the city. To determine their tax, the city will look at comparables in the neighborhood, do some magic mo-jo on the computer and spit out a number.
I don't know what it will be (the city doesn't know yet!) but let's assume it tracks with a general rise in real estate values in their neighborhood and comes in at about $420,000. What will their tax be?
Well, no one knows that either -- not yet. But, it is safe to say it will go up.
My curbstone estimate is this couple's real estate tax will rise to about $5,100 -- or roughly a 50-percent increase.
All of a sudden, their local tax burden goes from $6,443 to $8,254 -- from 8.6 percent of their income to 11 percent of their income. It's an extra $100 a month that will have to come from somewhere. (Go brown bag for lunch? Skip on the new shoes for little Sally? Eat at home instead of going to La Lupe?)
The city argues that it is only fair for them to pay more. The existing real estate tax does not reflect the true value of property; ergo the couple has not been paying their fair share over the years.
I assure you, it doesn't feel that way to the couple. I tend to think of taxes holistically: how much do I pay overall, as opposed to philosophical musings on each tax.
Of course, there is a way to correct this. If the city has decided to rely more on real estate taxes to get the money it needs, it should lower wage and sales tax rates to keep the overall tax burden even.
For instance, in order to bring the South Philly couple's total tax burden back in line with the suburban rate, the city could cut the wage tax from 3.9 percent to 2.4 percent.
Our South Philly couple has three options: grin and bear it -- take the hit in additional taxes; wait for the happy day when the city actually lowers a tax, or head to Trulia.com and under 'Houses for
-- Tom Ferrick Jr.