Philadelphia Forward Offers Testimony Before City Council

Testimony Before the City Council Committee of the Whole

May 10, 2004

Madam President and members of City Council:  Thank you for providing this forum to discuss tax reform legislation.  I am Bill Miller, Chairman of the Board of Philadelphia Forward.  With me are the members of the Philadelphia Forward Executive Committee — our Treasurer, Sharmain Matlock-Turner, President of the Greater Philadelphia Urban Affairs Coalition; our secretary, David Thornburgh, Executive Director of the Pennsylvania Economy League, Eastern Division; and Brett Mandel, Executive Director of Philadelphia Forward.  We are joined by many former members, researchers, and staff of the Philadelphia Tax Reform Commission who are here as resources for you to help answer any questions you may have about the work of the Tax Reform Commission and the push for tax reform.

We come before you in support of bills 040009 through 040021, which would implement recommendations of the Tax Reform Commission.  As we address you, we note that we address the legislature of the nation’s fifth-largest city for the last time —  not because we will never appear before you again, but because Philadelphia’s continuing population loss will soon leave us the nation’s sixth-largest city, in the rear-view mirror of growing Phoenix.  If it makes you feel any better, we are still number one in terms of the cost of doing business according to the most-recent survey conducted by the Kosmont-Rose Institute.  We see a clear line connecting Philadelphia taxes and the costs they impose, with the city’s ongoing decline.

What is wrong with Philadelphia’s taxes?  Philadelphia’s tax burden is higher than the burdens imposed by rival cities and surrounding suburbs, which makes the city uncompetitive.  Philadelphia taxes what other cities do not, which sets us apart in a bad way.  Most cities don’t tax wages, but we do.  Philadelphia’s Wage Tax is the highest in the nation.  Philadelphia’s business taxes are the highest among major American cities and Philadelphia is the only big city that taxes business receipts and income.  Finally, Philadelphia taxes unfairly so some taxpayers pay less than their fair share while others are forced to pay a higher burden.  Most cities tax real property equitably, with all taxpayers paying their fair share, but Philadelphia’s assessment methods cause the poor to pay too much, while the wealthy get a break.

But Philadelphia now has a plan to fix what is wrong with its taxes.  In 2002, nearly 180,000 Philadelphians voted to establish a Tax Reform Commission to create a plan to reduce the city’s tax burden in a socially and fiscally responsible manner.  The Commission spent $.5 million of taxpayer money and ten months to produce a comprehensive blueprint for tax reform.  This plan is credentialed, popular, and ready to be enacted – but it may be destined to gather dust on a shelf.

It is time for an organization to say loud and clear that the status quo approach toward fixing the city’s tax problem is not good enough.  It is in that spirit that Philadelphia Forward was formed to educate about measures to transform Philadelphia — from a city that is growing older, poorer, and fewer — into a vibrant city that is a preferred place to live, work, and visit.  Philadelphia Forward is working to show that tax reform fosters neighborhood and community economic development, which will create jobs and opportunities for city residents and increase investment in neighborhoods throughout Philadelphia. 

The package of recommendations put forth by the Tax Reform Commission and embodied in bills 040009 through 040021 stands together like a three-legged stool of complementary proposals:

·        Dramatically reduce the burden of the Wage Tax by cutting it from its current rate incrementally to 3.25% for both residents and nonresidents in 2014, and make those reductions on January 1 of each year to simplify the system for taxpayers.  To specifically help low-income wage earners, we would have the city invest at least $1 million in the Campaign for Working Families to help return up to $150 million in annual federal and state tax credits that currently are not received by eligible low-income Philadelphians.

·        Reform, reduce and gradually eliminate the Business Privilege Tax.  These recommendations would implement Single Factor Apportionment to base Net Income Tax liability solely on city sales; phase in allowing partnerships to deduct payments to partners against their Business Privilege Tax Liability so partnerships and their corporate competitors are treated equally; extend the Net Operating Loss Carryforward from three years to ten years to make Philadelphia more attractive to start-up firms; allow taxpayers to pay their Business Privilege Tax Liability in two payments over two dates instead of one single payment on a single date; and unify the refund and assessment periods so the city and taxpayers have equal rights for auditing and seeking refunds.  Finally, incrementally reduce the Business Privilege Tax until it is completely eliminated in 2015.

·        Make the Real Estate Tax system fair and transparent.  These recommendations would improve the real estate assessment process by assessing at 100% of property value; implement safeguards against large property tax increases; have assessments and appeals handled by separate agencies and create a Taxpayer’s Advocate to represent citizens in the process; enact budget-based Real Estate Taxation so elected officials set rates after assessments are performed; repeal the Real Estate Non-Utilization Tax as it has never been deemed legal to be collected; close loopholes in the Realty Transfer Tax to make the tax more equitable; allow quarterly payments of the Real Estate Tax to improve taxpayers’ ability to pay; apply tax payments to current year’s liability so taxpayers qualify for state-based property tax rebates; and phase in land-value taxation to encourage property improvements and discourage blight.

I want to thank City Council and the Mayor for understanding how important tax reform is to the city.  By supporting the creation of the Tax Reform Commission, it is obvious you know how important it is for Philadelphia to be a place that attracts people, keeps those who live and work here and brings in new economic vitality.  I also know that deciding on these issues is no easy task.  Yet I believe that, the future of our city lies in our being able to create opportunity for all of our citizens….even those who low income. 

Those who receive the least in our city are those most in need of tax reform.  Low and moderate income workers need jobs and they need those jobs to be in Philadelphia where their homes are and where their children attend school.  The Tax Reform Commission estimates that by 2017, 47,000 new jobs will be created in Philadelphia.  Those with low and moderate incomes need to be able to start a micro or small business in Philadelphia.  The Tax Reform Commission has proposed that Philadelphia incrementally reduce the business privilege tax until it is eliminated in 2015.  Those with low and moderate incomes need to be able to purchase a home and watch it appreciate.  The Tax Reform Commission believes that the median home value will increase by an additional $7,600 by 2010 and an additional $19, 300 by 2017.   Low- and moderate-income workers are most in need city services. 

An expanded tax base will allow the City to expand city services to those who need them the most.  Low- and moderate-income workers need support to access federal and state tax credit and tax forgiveness programs.  The Tax Reform Commission estimates that $75 million in state tax forgiveness dollar are going uncollected.  Regressive wage taxes, PGW rates and high car insurance rates continue to lower the buying power of low and moderate income workers.  The Tax Reform Commission urges the continuation of the lowering of the city wage tax. 

I urge City Council to support the Commission’s recommendations and the 13 bills that would implement them in their entirety.

We certainly understand that the city budget is currently stressed, but it is clear that, without tax reform, the city’s very viability is in question.  The Mayor’s very own, hand-picked 21^st Century Review Forum transition team said it best:

"The City should move quickly to adopt the major recommendations of the Tax Reform Commission – even if expenditures have to be reduced to cover the initial tax revenue shortfall.  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."