City Council is scheduled to discuss wage tax cuts, business tax cuts and other budget issues beginning Wednesday afternoon.
Philadelphia Mayor Jim Kenney and Council President Darrell Clarke in Philadelphia City Hall on Friday afternoon. City Council hearings this week are considering wage and business tax reductions.ALEJANDRO A. ALVAREZ / Staff Photographer
Philadelphia has the nation’s highest wage tax and double-taxes its enterprises through a Business Income and Receipts Tax (BIRT) — the only major U.S city to do so. These two taxes are major reasons cited by employers and employees who choose to locate just outside of Philadelphia city limits.
Instead of lobbying individually, the chambers formed the Inclusive Growth Coalition with its own website . The coalition notes past economic growth didn’t help everyone, especially underserved populations, and that small businesses desperately need tax relief.
“This is the first time we’ve gotten together,” said William Carter, the Greater Philadelphia Chamber of Commerce’s liaison to City Hall. “It’s unprecedented. What I know is that business people — Black, brown, everyone — need less red tape and more help to succeed. They need to compete against the rest of the Philadelphia region and the nation.”
A vote could come as soon as this week, according to Councilmember at Large Derek Green, who supports the bill.
“With inflation now even higher, businesses struggle to keep their lights on. Now we need policy to address that,” Green said. “Small business has not been a focus of this administration.”
Councilmember David Oh also supports wage and business tax cuts, although he’s discouraged due to past change efforts that have failed.
“Council is focused on collecting taxes instead of rewarding businesses, who, by the way, all feel picked on by the city,” he said. Liberal members of Council “don’t understand that people need jobs, a union job, a family-sustaining job. Right now, we are lacking that empathy.”
Carter began in September to enlist all the diverse chambers to work together: the African-American Chamber of Commerce; Greater Philadelphia Hispanic Chamber; the Asian American Chamber, and the Independence Business Alliance/LGBTQ+ Chamber of Commerce, and his employer, the Greater Philadelphia Chamber of Commerce.
”It naturally came together,” he said.
Carter recalled that his grandfather and great-grandfather, both North Philly natives, left for opportunity elsewhere to set up contractor and heating businesses, respectively. A Temple Law School graduate and a longtime City Council staffer, Carter joined the Greater Philadelphia Chamber of Commerce last year. His focus has been building the Inclusive Growth Coalition as a united front.
The joint arguments are that ”if you want equitable growth in our city, first [the businesses] have got to be here” within city limits, he said.
It’s a lot easier to move your business to City Line Avenue, Carter said, than to pay business and wage taxes. Instead, he and the Inclusive Growth Coalition are advocating that City Council reduce the taxes over a 10-year period.
Philly double tax
Philly has the nation’s highest wage tax and stands alone in how it taxes business income. Of the nation’s 30 biggest cities, 11 impose a tax on either profits or revenue, according to a 2016 Pew report.
Philadelphia stands alone in taxing both.
The city’s Business Income and Receipts Tax (BIRT) uniquely taxes both profits (6.25%) and sales (1.415% per $1,000), making it one of the most burdensome levies. Businesses pay this tax even if they are suffering losses because the city taxes every dollar of sales, before expenses.
Philly’s highest-in-the-nation wage tax totals 3.8712% for Philadelphians and 3.5019% for nonresidents.
To support an equitable recovery, the chamber coalition proposed a 10-year plan that reduces the city’s wage tax below 3% for everyone who works in city limits; and a 10-year plan to cut the net income portion of the BIRT tax in half to a rate of 3.10%.
“Small businesses can’t bear Philadelphia’s taxation system while experiencing the effects of the pandemic and the uncertainty of the economy,” said Jennifer Rodriguez, president of the Hispanic Chamber.
“Philadelphia has been double-taxing businesses for a long time and the wage tax has earned us the number one spot among major cities as the highest,” she said. “How do we fight poverty if businesses are not incentivized to pay higher wages and to lower taxes?”
City Council is holding a 5 p.m. Wednesday hearing with a wide-ranging agenda, looking at the budget as a whole, including potential changes to property taxes, taxes on workers and business owners, and support for senior citizens.
Council hopes to reach a final budget deal, when the Committee of the Whole reconvenes next week to consider all taxing and spending proposals. The Council needs to pass a budget by June 30.
“With inflation surging, staples of everyday life — gas, groceries, and going out — are getting more expensive, we need to give an immediate raise to workers and increase the ability of employers recover, grow and hire,” Green said.
“A significant portion of people now work remotely. My concern is that wage taxes by nonresidents won’t come back,” he said. “And we have to help companies come back into office space in the city. It has a ripple effect, boosting sales taxes, parking taxes.”
Votes so far At least nine of the 17 City Council members are leaning toward voting for the cuts, said Jabari Jones, president and CEO of the West Philadelphia Corridor Collaborative, which lobbies for small business owners.
“We’ve advocated for years about tax reform. For years [City Council] kicked it down the road to the next budget cycle,” Jones said. “Business is so fed up, and what I’m hearing is, this is it. Either do it or don’t do it. All my members are for it. They’ve had such a bad year. And they’ve been frustrated for a long time.” Taken together, these taxes encourage companies to move to the surrounding suburbs, where local wage taxes are lower or nonexistent, and there’s nothing like BIRT, according to Paul Levy, the Center City District’s president.
Political progressives disagree with the chamber, saying tax cuts won’t lead to equitable growth.
“The budget debate over the last week pitted needs of homeowners and renters against needs of the schools. that’s an example of pitting communities against each other,” said Arielle Klagsbrun, a spokesperson for the TaxTheRichPHL.org coalition of left-leaning organizations. The group recently released a report saying it was more important to keep funding community groups than cut taxes.
But nearly everyone — regardless of political affiliation — agreed the city needs to start spending the remaining federal American Rescue Plan funds to offset any budget gaps.
“That’s money that should be used for communities hit hardest by pandemic. It feels like a missed moment. We need to spend that money right now,” Klagsbrun said. “We should spend it as soon as possible.”
Staff writer Sean Collins Walsh contributed to this report.