National/Local Editorials Push Tax Reform; Pressure Council's Enigmatic Eight

While the Mayor and the enigmatic eight on City Council ignore the recommendations of the Tax Reform Commission and the endorsement of the Mayor's hand-picked transition team, the media is turning up the heat.  A Tuesday, Philadelphia Inquirer editorial summed up the tension nicely:  "This standoff is a classic.  Street maintains that the city cannot afford the budget cuts needed to finance the tax package.  The Council majority, the city's leading business groups and a host of ordinary citizens reply: A city that's been leaking jobs and population for decades can't afford not to cut its tax burden sharply."  (full editorial)

A Thursday, Philadelphia Daily News editorial was even more pointed:  "The citizens of this city, which overwhelmingly approved the creation of the Tax Reform Commission, shouldn't let their Council members or mayor get away with a 'been there, done that' attitude about tax reform.  Debating a problem is not the same thing as solving it."  (full editorial)

But the local papers are not the only ones paying attention to the situation.  The Wednesday Wall Street Journal lead editorial starts by declaring, "The good news out of Philadelphia is that the intellectual battle for tax cuts has been won.  The bad news is that tax-happy Mayor John Street is standing athwart history shouting 'Stop!'"  It concludes, "Let’s hope the Council keeps its nerve and lets Mayor Street know that it intends to listen to long-suffering city voters.  The reward will be a healthy, more vibrant, Philadelphia."  (Click read more below to see full editorial.)

That is tremendous national attention for Philadelphia.  When is the last time the city made news coast-to-coast?  The Real World fiasco?  The City Hall bug?  The collapse of the National Constitution Center stage?  We have a tremendous opportunity to achieve tax reform, make history, and generate positive national news.  This is not just a story of elected officials fighting about city spending.  The story of tax reform in Philadelphia is a tremendously important story about a city that will fight to grow or a city that will accept continued decline. 

THE WALL STREET JOURNAL

Wednesday, June 9, 2004

Review & Outlook

Philadelphia Freedom

The good news out of Philadelphia is that the intellectual battle for tax cuts has been won.  The bad news is that tax-happy Mayor John Street is standing athwart history shouting “Stop!”

Philadelphia has learned the hard way what it’s like to watch businesses and jobs flee to more competitive tax locales.  One of the most heavily taxed cities in the nation, Philly has lost 250,000 jobs and 430,000 residents since 1970.  Residents have increasingly demanded a reduction in a state and local tax burden that takes 14.5% of income (versus 9% in the nearby suburbs), but city politicians have refused to listen.

Which is why 80% of Philadelphians voted in 2002 to establish a Tax Reform Commission, the sole job of which was to “recommend methods to reduce the taxes of Philadelphia residents, workers, and businesses in an equitable manner in order to enhance Philadelphia’s ability to compete…”  Last year that Commission recommended comprehensive tax reform, in the process giving city residents (and its political class) an education in supply-side tax policy.

The Commission proposed a sharp reduction in the city’s crippling wage tax, which at 4.5% is more than twice the average of the few other urban areas that even levy such a fee. It also called for axing the “business privilege tax,” which allows government to tax both business gross receipts and net income.  Only three of the nation’s largest 20 cities have a job-killing tax on net income, and one, Detroit, is phasing it out.  Real estate taxes also need reform, the Commission said.

Even more encouraging was the body’s enlightened view of how to “finance” these cuts:  “The Commission is confident that economic growth over the long run will increase tax revenues sufficiently to offset the temporary impact of reduced tax rates.”  It predicted the tax cuts would create 47,000 new jobs by 2010, resulting in a broader tax base that would “recapture” lost tax revenues. 

Where have we hard that before?  Ah, yes, this week we can dare to call it Reaganomics and most Philadelphians seem to be converts.  The Commission’s reforms are supported by most voters, businesses, even Philly’s two rival liberal newspapers.  The Democrat-dominated City Council responded last week by passing a $3.4 billion budget that included about $340 million in tax cuts over five years — in addition to $375 million of tax cuts that had been in the works for several years.

So much for the good news.  Within hours of the Council vote, Mayor Street had promised a veto.  He’s also whipped out the class war rhetoric that he’s used in the past, warning that further reform would lead to a loss of city services that would place “unreasonable risk” on those “who can least afford it.”

Philadelphia is in such dire straits that even Mayor Street felt obliged to say that he too believed that tax cuts would increase revenues down the road.  But he seems to think the city can’t afford to lose revenues in the short term, before the tax cuts start reattracting private business.

This sounds like a big-city mayor looking desperately for a reason to continue his free-spending habits.  Mr. Street would have to trim a mere 2% out of $16.5 billion in spending over the next five years.  But to a politician who made his career by spending to buy votes (for instance, his $1.6 billion neighborhood “transformation” scheme), apparently any budget cut is too painful.  Mayor Street is also bowing to political opposition to tax reform from his allies in the city unions — which he’s due to begin negotiations with later this summer.