Philadelphia Metropolis


The Shift or the Shaft?

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One interesting thing about Mayor Nutter is that he talks like Mayor Rendell and he acts like Mayor Goode.

Like Ed Rendell, his public comments reflect an understanding that lower taxes means more jobs and economic development for the city. 

Like Wilson Goode, he is not averse to raising taxes, especially as an alternative to making tough choices on city government. 

He talks the Rendell talk, but walks the Goode walk.

And, so far, he has raised the sales tax (from 7% on the dollar to 8%), the parking tax (from 15% of gross receipts to 20%); the property tax by nearly 20 percent (in three bites.) This year, he also raised the use and occupancy tax, which is paid by renters of commercial properties. He tried and failed to enact a sugary drinks tax and a trash collection fee.

The Great Recession was the stated cause of these increases.  Or, as the administration likes to refer to it (sounding like a circus ring master announcing a new act) the incredible, stupendous, never-before-seen recession!

The mayor also put a halt to the slow but important yearly decreases in wage and business taxes begun under Ed Rendell.  When it comes to the wage tax (which brings in about $1.2 billion a year), the current rates - frozen in place since 2009 - are 3.93% for city residents and 3.5% for suburban residents who work in Philadelphia.

Our wage and business taxes are among the highest in the nation.  Tax study commissions - and there have been many over the years - have recommended lowering the rates in order to stimulate job growth.  The general idea has been to shift our tax mix away from taxing people and businesses (who can flee the city) and towards taxing real property.  The stuff that can't move.

The key word in that previous sentence is the word shift. What happens if the city increases property taxes (as it has done), but doesn't lower wage and business taxes?

Our tax climate will become even more hostile and more onerous.

In its latest five-year-plan the administration announced it intentions of resuming the small cuts in the wage and business taxes effective next year.

But, excuse me for being skeptical about Council and the Mayor following through on that promise.

The problem with property taxes is that the city has to split the proceeds with the school district, with the district getting 60% o the take and the city 40%.

In fact, this year, with the $40 million in tax increases enacted by Council, all of the additional property tax proceeds will go to the district.  The city won't get a dime.

On the other hand, the proceeds of the wage tax goes entirely to the city to pay for operations of city government. 

What happens is the city has another crisis - like paying for a new contract for city employees - and decides it needs that wage tax money to ease its pain?

Let me put it another way:  What is the true constituency for lowering taxes among the city's political leadership?

When John Street tried to enact a freeze in the decline in wage and business taxes during his second term, the person who fought him off was Councilman Michael Nutter (with help from the business community and various political allies.)  That was during his Ed Rendell phase.

That didn't stop him, as mayor, of enacting the freeze he had opposed under Street.  That was his inner Wilson Goode talking. You see how easy it is to come down on both sides of an issue?

But, it's not so important what Mayor Nutter wants to do because the mayor is likely to be irrelevant to the proceedings. He may even be gone - if there is a second Obama administration. Even if he is not, his lame duckness (is that a word?) will only increase with the passage of time.  Council will run the proceedings.  The person with the most say may likely be Darrell Clarke, who could be mayor, or still Council President.

I don't know where Clarke stands on this issue, but I do know that Council people tend to be more city services oriented than lower-tax oriented. 

The reality, though, is that under AVI, the city's reassessment program, a lot of people - including a number of them in Clarke's district - are going to be shocked with significantly higher property taxes.  (For details, see this week's Cover Story).

If we don't get the shift, they get the shaft.

-- Tom Ferrick


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