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A Taxing Situation

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Money.jpgThere's a classic good news-bad news split in a new study on state and local taxes done by Pew's Philadelphia Research Initiative.

For Philadelphians, the good news is that city residents are no longer among the highest taxed in the region.

The bad news is that is not due to any huge policy shift towards lower taxes in the city.

It's mostly because taxes have increased so much in the Philadelphia and New Jersey suburbs in the last 12 years that many of them now tax their residents at a higher rate than the city.

In a 2000 study done on the same topic, Philadelphia ranked third in terms of the state and local tax burden -- the data in the Pew study is keyed to a family of four with an annual income of $60,000.

Today, we rank 48th.

To give more specifics, in 2000 the Smiths of Philadelphia ($60,000 annual income, owning a home worth roughly $186,000) paid 13.5 percent of their income in state and local taxes.  Today (in inflation adjusted dollars) they pay 12.9 percent.  A slight decline.

If you look at the Jones family living in Pennsylvania suburbs (married couple with two children, $60,000 income and $186,000 home) they paid 9.8 percent of their income in taxes in 2000.  Today, they pay 12.2 percent.  A significant increase.

Why is this happening?

In the suburbs, the answer is easy.  Over the last 12 years, counties and local municipalities have raised taxes in order to meet demand for services.  They also regularly reassess their properties to keep up with market value. 
In Philadelphia, the answer is more complicated.  For one thing, wage tax rates have actually gone down -- from 4.6 percent in 2000 to 3.9 percent today.  This is part of a policy, begun under Ed Rendell, of making small cuts in the wage tax over a 20-year timeline.  [The reductions were halted by the Nutter administration in 2009, but are scheduled to resume next year.]

For another thing, while suburban counties have kept pace with reassessing, Philadelphia has fallen behind -- mostly by simply not reassessing. Our assessment-to-market ratio is supposed to be 32 percent [If your house is worth $100,00 on the market, you should pay taxes on $32,000.]

According to Pew's study, the average assessment-to-market ratio is nowhere near 32%. According to a study of assessments vs. market value done as part of this project, they found the average was 13 percent.

AVI will correct that.

The Pew study includes an interactive map that allows you to see what the local and state tax burden is in many municipalities on both sides of the river. You can find it here.

It also offers further proof of the stress felt by inner ring suburbs, who emerged with the highest average state and local tax burden -- again, for the mythical $60,000 a year family of four. It is particularly acute in Delaware County, were the tax burden in a number of municipalities is seven or more percentage points higher than the city. [Darby Borough leads the way with a tax burden of 21.6 percent of income].

These suburban communities have stepped ahead of Philadelphia in terms of tax burden on families. It makes you wonder about the wisdom of out-migration from the city.

Seen strictly from a tax point of view, instead of moving from Cobbs Creek to Upper Darby, where tax burden is 20.3 percent of income, people should consider moving from Upper Darby to Cobbs Creek, where it is 12.9 percent.

From the perspective of those folks who live in these inner ring communities, Philadelphia is a tax haven. I never thought I'd ever be writing that.

-- Tom Ferrick

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