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Philly’s onerous tax system is a job killer. Here’s what the mayoral candidates say they’ll do about it. | Editorial

by The Inquirer Editorial Board

Mar 19, 2023

The next mayor needs a coherent tax policy that reduces wage and business taxes in order to promote job growth and reduce poverty.

One of the principal reasons Philadelphia is the poorest big city in the country is because it is also one of the most heavily taxed.

Among the dozens of taxes Philadelphians pay, the wage tax is the highest in the country; the sales tax is 33% higher than in the suburbs surrounding the city; a business tax dings both revenues and net income, and the property tax system is uneven and riddled with inaccuracies despite reforms.

The upshot is Philadelphia’s onerous tax burden discourages the presence of businesses that can create jobs — a factor that is inextricably linked to the high poverty rate. The next mayor needs a coherent tax policy that reduces wage and business taxes in order to promote job growth and reduce poverty.

In addition to fighting crime and improving schools, where the mayoral candidates stand on taxes is a key issue voters should weigh in making an informed choice. The Inquirer editorial board examined the candidates’ websites, voting records, public comments, and policy papers to develop the following snapshot.

State Rep. Amen Brown didn’t respond to a request for a policy paper, but his website mentions using tax policy to grow small businesses. He wants to give new small businesses a three-year tax abatement on the city’s Business Income & Receipts Tax.

The Business Income & Receipts Tax has long angered businesses because it taxes both revenues and net income. Brown said the abatement would give small businesses a chance to get established before being hit with the tax. He likened his plan to the 10-year property tax abatement on new construction that helped spur development. It’s a worthy idea, but hardly a game changer.

Jeff Brown, the grocery-store magnate, also did not provide a policy paper and his website doesn’t mention taxes. In an interview with the editorial board, Brown said he favored maintaining incremental cuts in the wage and business taxes. He opposed Mayor Jim Kenney’s soda tax but said if elected he would not repeal it. While Brown is an outsider promising to upend the status quo, his tax policy seems conventional.

Judge James DeLeon’s website does not address taxes but mentions conducting listening sessions with business owners, especially small business owners. He provided a two-page white paper that identified the problem of onerous taxes but offered no substantive solutions.

Allan Domb, a former city councilmember and real estate magnate, sponsored several bills in Council designed to reduce wage and business taxes. He provided a five-page white paper and plans to release an economic development and poverty plan in the coming weeks.

Domb wants to accelerate cuts to the wage and business taxes to grow jobs. He opposes the wealth tax proposed in City Council last year and said he voted for the soda tax but no longer supports it.

Domb doesn’t believe higher taxes will solve the city’s problems. He noted the city’s budget increased 50% under Kenney, yet poverty, crime, and underperforming schools remain unchanged, if not worse.

“Our city’s problems are not due to a lack of available funding, but rather poor prioritization, planning, and implementation,” Domb said. Amen. Now what’s going to happen?

Derek Green, a former city councilmember, provided a three-page white paper calling for “pragmatic” and “inclusive” tax reforms that tell companies Philadelphia is “open for business.”

Green cited the need to continue to reduce the wage and business taxes. In particular, he wants a tax policy focused on helping small businesses and wants the Revenue Department to aggressively go after sales taxes.

As a councilmember, Green helped negotiate a deal with the Kenney administration to reduce the Business Income & Receipts Tax to 5.99%. He introduced legislation to shift the property tax to a land value tax, a move experts believe would create a more equitable tax structure by placing more emphasis on taxing the value of land instead of any buildings that sit on it. That’s an idea that deserves more study.

Helen Gym, an activist-turned-city councilmember, voted against cutting the wage tax and opposed cuts to business and parking taxes. She led the effort to scale back the tax abatement program that helped spur development. Gym and two other councilmembers proposed a wealth tax that critics said may prompt rich individuals to move out of the city.

Gym’s website references “fair taxation” but provides no details. A four-page white paper calls for a tax commission focused on “equity and growth.” In an email, Gym said she would “work with the business community to propose new subsidies and incentives that prioritize growing Black, Brown, and local businesses” as well as “affordable housing, life sciences, and manufacturing.”

She added the current tax structure is “burdensome and must change.” But given Gym’s voting record and rhetoric, cutting taxes does not appear to be a top priority.

Cherelle Parker’s website does not provide details on any policy matters, but as a city councilmember she led a failed effort to reduce the city’s parking tax. As a state representative, Parker pushed for a cigarette tax in Philadelphia and increased collection of delinquent taxes.

Parker said in an email that she wants to shift away from the city’s heavy dependence on the wage tax to taxing real estate. A similar idea was touted several years ago by Paul Levy of the Center City District and the prominent local real estate investor Gerard Sweeney but died in the state legislature.

Parker said she would work with her former colleagues in Harrisburg and Gov. Josh Shapiro to get the measure passed. That’s easier said than done.

Maria Quiñones Sánchez, a former city councilmember and self-described pragmatic progressive, doesn’t mention taxes on her website but provided a five-page white paper that references wanting to reform the tax code to “lift the burden from small businesses” and make major corporations “pay their fair share.”

In Council, Sánchez dismissed incremental cuts to the wage tax and pushed for bigger cuts to the net profits portion of the Business Income & Receipts Tax. She pushed to help small businesses by exempting the first $100,000 of business income in the Business Income & Receipts Tax. That’s a good start, but much more is needed given the city’s tax burden.

Rebecca Rhynhart, the former city controller, pointed to the economic development issues section on her website. When members of this board reviewed the site earlier this month, the economic development section featured the word “tax” exactly once. The site has since been updated with a proposal to “Rethink Our Tax System” that prioritizes “balancing businesses’ growth goals with assurances that the city’s tax burden does not fall on our most vulnerable residents.”

During the pandemic, Rhynhart pushed back against the Kenney administration’s plans to cut service and increase taxes. Instead, she identified several cost-savings measures. At an event last summer, Rhynhart dismissed the idea of a wealth tax.

As the city’s top financial watchdog, Rhynhart released numerous reports that identified ways to more efficiently spend tax dollars, including one that shined a harsh light on the hefty police budget. Another thoughtful report weighed the costs and benefits of the tax abatement program. Voters need to see more of that.

Substantive solutions to the city’s burdensome tax structure are the most effective way for the next mayor to create jobs and reduce poverty. Much of the other rhetoric is noise voters have heard before.

Editor’s Note: This editorial has been updated with additional information about the tax policy plans outlined on Rebecca Rhynhart’s website.

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