Tax Reform Results (for now) Some Good, Some Bad, Some Ugly

What do we want?  Tax Reform!  When do we want it?  Soon!  The Mayor and City Council finally resolved the city's most recent budget crisis creating a mixed result for tax reform.  Read more for a recap to describe what happened, what it means, and what will happen next.

 WHAT HAPPENED?

The Mayor signed into law the legislation to reduce the Wage Tax.  The Wage Tax will be reduced on January 1, 2005 from its current rate of 4.4625% for residents and 3.8801% for non-residents to 4.331% for residents and 3.8197% for non-residents.  By 2006, the Wage Tax will be lower than it has been since the Flyers last won the Stanley Cup in 1975.  The legislated reduction schedule would then further reduce those rates to 3.25% for both residents and non-residents in 2015.  Additional Wage Tax cuts connected to state legislation and gambling revenues could drive that rate down even further.  This dramatic reduction of Philadelphia's most hated tax is great news.  Wage Tax reductions will make local taxes less burdensome and improve the city's ability to retain and attract employers as it increases workers' take-home pay.

The Mayor vetoed the legislation to eventually eliminate the Business Privilege Tax.  City Council fell one vote shy of enough to override the veto.  The portion of the tax that falls on gross receipts will not be reduced beyond currently planned cuts in the next few years and the portion of the tax that falls on net income will not be reduced at all.  While the city administration and its allies in Council once tried to stop cutting the Wage Tax in favor of deeper cuts in the Business Privilege Tax, they now have tacitly embraced additional Wage Tax cuts without additional cuts to the Business Privilege Tax.  Big businesses and major employers may get sweetheart tax breaks or special deals or tax-free zone designations, but Philadelphia's small, neighborhood businesses will have to continue to put up with the nation's most burdensome local business tax.  While this is certainly a disappointment, it must be seen only as a setback to the greater cause.  In a real sense, the legislation that was vetoed would not have changed policy this year (the cuts vetoed by the Mayor would have started NEXT year) so the city loses no ground by revisiting the issue next year.  More important, now that we have taken a major step forward by cutting the Wage Tax for city residents, commuters, and employers that compete nationally to lure talent, we can focus on the fact that we must eventually eliminate the Business Privilege Tax to do something to help our neighborhood businesses compete.

Councilmembers Blackwell, Clarke, Mariano, Miller, Ramos, and Reynolds Brown, who claimed that they were concerned about cutting city spending to afford tax reductions, voted against overriding the Mayor's veto of the proposed cuts to the Business Privilege Tax.  Ironically, their vote against the Business Privilege Tax reductions was not just a vote against the interests of neighborhood businesses across this city, their vote forced the Mayor to cut the Police budget by $4 million this year, and additional personnel cuts in city agencies in future years.  (I have not heard a peep from any of the elected officials who caused these cuts as to why we are suddenly able to cut the budget to stop tax reform when we could not cut the budget to afford tax reform.)

Today, a minority of elected officials in Philadelphia thwarted the will of the public and the majority of the citizens' representatives on City Council.  They ignored the recommendations of the Tax Reform Commission, the Mayor's hand-picked transition team, the City Controller, and the Pennsylvania Intergovernmental Cooperation Authority Board.  The timing of this development, coming on the heels of the major indictments and new revelations in the federal corruption probe of City Hall could not have been better timed because those indictments and this latest action clearly show that public policy in Philadelphia too often ignores the general public interest in favor of the moneyed and powerful special interests.  The favored few benefit and certain projects may move ahead while the citizenry suffers and the city declines.  

A fundamental issue that has emerged in this debate over tax reform is the troubling way we develop governmental policy in Philadelphia.  We do not have enlightened debate, careful study, and diligent analysis to choose the policies that will shape the city's future.  Too often, we have policy development the way a farmer tends to mushrooms.  The public is kept in the dark as manure is dumped on our heads. 

We must recall that the Mayor himself called the work of the Tax Reform Commission the "blueprint" for tax reform and the Mayor then pushed back the budget process by two months so that his hand-picked transition team could review the work of the Tax Reform Commission.  When that transition team endorsed the work of the Commission, the Mayor ignored the endorsement and city administration officials claimed that the proposed budget could not be cut to allow for tax reductions.  Yet somehow, that budget not only found room to continue the administration's pet projects, that budget included new administration initiatives.  That budget endured cuts to restore programs favored by City Council and finally, with his action vetoing the bill to reduce the Business Privilege Tax cuts, the Mayor found the ability to cut even further into the budget that administration officials claimed could not endure any cuts. 

The city administration finds ways to make certain policies a priority and finds ways to pay for favored programs, but finds excuses to avoid pursuing other initiatives.  Deliberations happen behind closed doors, out of the public view and new misinformation is developed every day to preserve the status quo.  That may help grow some tasty mushrooms, but it is no way to run a city.

WHAT MATTERS?

So what have we — Philadelphia Forward and you — accomplished in the past months?  We have established new voice in the local political system.  We established a new model for people to become educated about important issues and we established new conduits and mechanisms for people to express their views to their elected officials.  The incredible outpouring of public voice in support of tax reform was truly unprecedented in recent memory and the faxes, emails, postcards, letters, and phone calls that flooded City Hall let our elected officials know (loud and clear) how the public felt about this important issue.  Today, Anthony Ianino from North Philadelphia sent the last fax to City Hall on this subject of tax reform, capping off a tremendous pile of more than 80,000 faxes sent through Philadelphia Forward to elected officials.  That pile would rise nearly as tall as the statue of William Penn on City Hall itself.

In a very real sense, we have taken the report of the Tax Reform Commission — which may have been destined to gather dust on a shelf — and we not only made it the center of a serious public policy debate, we developed universal support for tax reform among the city's elected officials.  We are no longer debating whether we should reform our high and unfair taxes.  We are debating when to reduce our burdensome taxes and which measures will make our taxes most fair.  We have fundamentally changed the debate on this issue and we must now continue to push for final implementation of these initiatives.

This effort had three key ingredients to make reform possible.  Just like a fire needs oxygen, heat, and fuel to burn, the push for tax reform had the foundation of a good idea in the work of the Tax Reform Commission, the leadership from elected officials necessary to move the ideas through the political process, and the tremendous support from individuals and organizations across the city. 

Philadelphia Forward served as the spark to ignite the movement and the catalyst to start the reaction.  Peter Gabriel wrote, "You can blow out a candle but you can't blow out a fire.  Once the flames begin to catch, the wind will blow it higher."  This fire will continue to burn and Philadelphia Forward will fan its flames.   

Here is a nice point to recognize the people who made reform happen and who make this fire burn.  First, let's thank my fellow volunteer members of the Tax Reform Commission for their hundreds of hours of hard work to create the tax reform blueprint — Clarence D. Armbrister, Luis Cruz, Thomas P. Forkin, Patricia Garrison-Corbin, Melvin T. Jackson, Raymond Jones, William R. Miller, IV, David Newell, Edward A. Schwartz, Harold A. Sorgenti, Jonathan M. Stein, Al Taubenberger, Andrew VandenBrul, and Stewart M. Weintraub.  Here is also a good place to thank the city's elected officials who have showed the courage and conviction to push for tax reform — City Controller Saidel and Councilmembers Cohen, DiCicco, Goode, Kelly, Kenney, Krajewski, Nutter, O'Neill, Rizzo, Tasco, and Verna.  Finally, here is the perfect place to thank you for all of your help in this effort — without the incredible public voice and support there would have been no change.

WHAT'S NEXT?

In the near future, you can expect a more thorough analysis of the status of tax reform in Philadelphia in terms of what has happened to date, and what must still happen in the future to make city taxes more fair and less burdensome.

You can also expect the Philadelphia Forward "I-TOLD-YOU-SO" squad to gladly point out instances when city administration officials (who say we cannot afford to cut the budget to fund tax reduction) find money for new initiatives.  

Finally, you can expect more from Philadelphia Forward and I hope I can count on you as well, because Philadelphia Forward is not me or our board of directors and it is not a clever website or a series of relentless faxes.   Philadelphia Forward is a conduit for the public to push for much-needed change, a countervailing force to fight against the interests bent on preserving the status quo, and an entity that can begin to speak for Philadelphia in a polity where, too often, only the special interests are heard. 

This summer, Philadelphia Forward will build our organization and our capacity to continue educating about and promoting policies that make sense for Philadelphia.  Obviously, given the forlorn state of the city, we have a lot of work ahead of us to make Philadelphia a preferred place to live, work, and visit.  Unlike Philadelphia jobs and Philadelphia residents, Philadelphia Forward is not going anywhere and the people like you who believe that we should expect more from our city and its government are not going anywhere.  We know that this is a city worth the fighting for and we will fight for a better Philadelphia — and we will win.