The Philadelphia Tax Reform Commission, in making its formal recommendations yesterdayto city and state leaders, emphasized the importance of cutting taxes to attractbusinesses and residents to the city in hopes of stemming a population decline and theflight of good jobs.
The 15-member commission's creation was sanctioned by Philadelphia voters last November.Now it has delivered a list of 28 recommendations - written in the form of legislation -that it hopes Mayor John Street will incorporate into his fiscal 2005 budget and intothe city's five-year plan, both of which are expected to be introduced in late January.
One key ingredient in turning Philadelphia into a more business-friendly city is phasingout its business privilege tax, which is levied on both the gross receipts and netincome of city businesses, by 2014. At 6.5%, the net income tax charged to employers inPhiladelphia is one of the highest in the country, while most major cities do not evenuse a gross receipts tax, said Christopher Dwyer, executive director of the commission.
"No other big city like us taxes both," Dwyer said.
In addition, the commission called upon city government to trim the wage tax it imposeson residents and commuters. Currently, residents who work in Philadelphia pay nearly4.5% in wage taxes, while commuters pay about 3.8%. Under the commission's plan, bothwould be lowered to 3.25% over the next 10 years with the aim of luring talented workersto Philadelphia and giving them an incentive to take up residence in the city.
To make up for the shortfall in business and wage taxes, Dwyer and the commission arecounting on the influx of new employers to Philadelphia to draw more workers, who wouldin turn drive up property values and thus boost property tax collections.
A third key element to the commission's proposal is a move toward land value taxation.Under the current system, about 75% of property tax revenues in Philadelphia come fromstructures instead of from the land on which they are built. Shifting to an equal splitby increasing the tax rate on land would encourage development and investment whilestamping out blight, Dywer said.
If adopted, this element of the plan would also be put in place gradually, with theprocess complete by 2014. The commission advocates establishing more accurate land andstructure values, as well.
"Everything is phased in; it's incremental. It gives policymakers the chance to adjust,"Dywer said.
City Controller Jonathan Saidel, who attended the presentation, said he wholly endorsedthe commission's recommendations.
"I think the time for talking about ... tax reform is over," Saidel said. "I think wehave to make tax reform law as soon as possible."
According to a summary of the commission's report, Philadelphia's high tax rates andunusual tax mix have contributed to a loss of more than 250,000 jobs and 430,000residents since 1970.
