Philadelphia Forward Testimony Before City Council February 16, 2005

Testimony Before the City Council Committee of the Whole — February 16, 2005


Madam President and members of City Council:  thank you for providing this forum to discuss bill 040767, legislation to phase out the job-killing Business Privilege Tax.  I am Brett Mandel, Executive Director of Philadelphia Forward and with me today are a number of individuals who can speak of their direct experience with this awful levy. 


We know that we need tax reform because Philadelphia needs jobs. 


We know that high and unfair taxes contributed to the loss of more than 10,000 jobs last year in Philadelphia and more than 250,000 lost jobs in my lifetime. 


We know from econometric science and from our own tax-cutting experience in the past decade that if we reduce tax rates in Philadelphia, we actually increase tax revenues.  Dr. Inman’s latest annual report prepared for the City administration tells us that our recent tax reductions are responsible for preserving 22,000 jobs over the last decade.


And we know that a tremendous outpouring of public voice told this council by letter, by email, by phone, and by fax that Philadelphians want tax reform — NOW!


The voter-established Tax Reform Commission spent a year and $.5 million of public money creating a plan for tax reform that has been backed by business groups, community associations, and think tanks across Philadelphia.  It was endorsed by the Mayor’s 21st Century Review Forum transition team and promoted by the Mayor’s Economic Development Summit. 


A crucial part of the Tax Reform Commission’s plan is the phase out of the job-killing Business Privilege Tax to improve the city’s ability to attract and retain businesses.  Quite simply, eliminating the Business Privilege Tax is an issue of survival for Philadelphia’s small and growing businesses.


It is unheard of to tax business locally the way we do in Philadelphia.  We force new businesses to pay a $250 fee to begin operations and then tax every dollar in city gross receipts the business takes in even if it is not making a profit.  If the business happens to make money, the city taxes net income at 6.5 percent.  The city asks for the business to double-pay the Business Privilege Tax in the first year of operations and the city then asks for all of the money on one date instead of in quarterly or semi-annual installments.  Additionally, this tax is imposed in such a way that sole proprietors and partnerships actually pay an effective tax rate that is HIGHER than their corporate competitors.


The Tax Reform Commission concluded that we should phase out the tax and eliminate all of its problems.  As an important aside, I will note that reducing only the Gross Receipts portion of the tax does nothing to aide firms with no sales in the city — for these important firms who compete nationally and globally, we must phase out the Net Income portion of the tax or we are doing nothing to help them compete.  Similarly, creating an abatement for new businesses will do nothing to help existing businesses compete — in fact, it would be subsidizing newcomers who may take business from struggling firms in neighborhoods across Philadelphia.


You don’t need to hear all this — again — from me, so I will first read you a few tax reform stories that Philadelphia Forward has collected and that are available for review on our website —  Then, I will present a number of people who can provide their first-hand experience with the Business Privilege Tax better than policy wonks or economists ever could.


One responder wrote:  My employer's offices are in Radnor.  I live in the City, and would love to work in the city too.  In a conversation with the owner, I found out why he is reluctant to move his business into the city: taxes.  His small business can't afford to pay the wage tax, plus the gross receipts tax, plus the business privilege tax.  He loves the city, would be happy to be in a location more convenient to transportation, and in a 'bustling' urban environment.  But the tax burden imposed by the City is keeping this small professional consulting firm out of Philadelphia. 


Another wrote:  I have been exploring starting a new business, but the BPT is a killer.  A friend of mine who is a financial planner advised me to move out of the city completely and start my business in the suburbs.  


Had the city not lost more than 10,000 jobs last year, those jobs would not only have meant food on the table for 10,000 families and vitality in the community for neighborhoods across the city, those jobs would have meant more than $20 million in Wage Tax revenues for the city of Philadelphia that could be spent expanding city services. 


The Mayor’s hand-picked transition team, the 21st Century Review Forum, declared:

"The City should move quickly to adopt the major recommendations of the Tax Reform Commission….The mayor's very important quality of life strategies will not have the desired impacts or be sustainable in the long run in the absence of fundamental tax reform….Some will question whether the city…can afford significant tax reform at this time, but that is the wrong question.  Rather, we should ask how we can afford not to reform taxes now.”


I could not have said it better myself.  The Tax Reform Commission estimated that its recommendations will mean 47,000 jobs for Philadelphia by 2010.  If there is another plan on the table to grow 47,000 jobs in the coming years, let’s debate its merits, but we cannot accept the excuse that we can’t afford to enact the tax reform package.  Truly, we can’t afford NOT to do it. 


We urge you to pass bill 040767 and reject half-measures that are just not tax reform.  If Philadelphia is to move forward as a city, it must break with policies that hold it back.  Today, taxes hold Philadelphia back, tomorrow, tax reform can move Philadelphia forward.


Philadelphia Forward is now pleased to present some businesspeople who must cope with the job-killing Business Privilege Tax every day.