Poor Tax Decisions Make The Poor Pay More In Philadelphia

(April 2016)

It is a cruel fact of American life that it costs more to be poor.  In Philadelphia, the nation's poorest big city, where more than one in four residents lives in poverty, a proposed tax on sugary drinks is just the latest regressive tax policy that would ask the poor to pay even more.

I am not consulting for or affiliated with partisans on either side of this debate.  I do not drink a lot of sugary drinks.  I coach and play in and on city recreation facilities that would be improved by spending funded by the proposed tax on sugary drinks.  I like the idea of investing in universal Pre-K education.  But, despite the fact that I like the idea of where sugary-drink tax money might be spent and won't pay the levy much myself, I am convinced that it is a flawed tax policy.

Taxing Decisions

Most cities and other local governments primarily tax the value of place because this value is in part created by local investments.  They ask property owners to pay a small percentage of the worth of the real estate they own to help fund local government services.  While taxation of property does have its detractors, the idea of the tax itself makes a great deal of sense for cities.  When local government produces clean, safe neighborhoods where people want to live, that demand increases the value of properties that are subject to the tax, which then produces more tax revenue for the government to invest back into the community to improve neighborhoods -- it's a virtuous circle.  

But, in Philadelphia -- the city of neighborhoods, the city of homeowners -- leaders have avoided taxing the value of place.  Instead, they enacted a tax on wages (meant to be temporary, but has lasted more than 75 years) and taxes on business receipts and profits.  Philadelphia is one of a small number of cities that levies its own taxes on income and business activity.  Not only have these taxes encouraged some wage earners and employers to take their families and firms out of Philadelphia, but because Pennsylvania does not allow progressive taxation, rich and poor Philadelphians and large and small businesses are subject to the same tax rate.  

Tax And Rend

The last century of Philadelphia history includes a series of bad tax-policy decisions, with one overall, lasting impact being that crushing poverty is all too common.  Philadelphia continues to tax too much, tax what other local jurisdictions do not, and tax unfairly.  As a result, too many city residents are reaching deeper into their near-empty pockets to pay the tax man with money that could be going to support their families.

More recently, while trying to slowly reduce taxes on wages and business activity to make Philadelphia more competitive; city leaders have asked residents to pay more for what they purchase: an increased Sales Tax and liquor-by-the-drink and cigarette taxes.  Since lower-income Philadelphians spend a greater proportion of their money on purchases, increasing their costs disproportionately affects those who can afford it the least.  The poor pay more.

Asking Philadelphians to pay more for sugary drinks is another regressive tax that will make Philadelphia's poor pay more, but if we want to spend more money as a city (without reductions elsewhere in the budget), where can we turn for additional revenue?

Tax Shelter

The value of place continues to be the best option for local taxation and Philadelphia needs to look no farther than the ground under our feet for the solution -- and we do not have to increase tax rates at all to make it work.  

First, while Philadelphia taxes real estate, we do a lousy job at collecting the tax.  We allow far too many to not pay the tax and delinquency rates in Philadelphia are much higher than in other cities.  If those who owe, pay, we would not have to reach deeper into the pockets of those who can least afford to pay more.

Second, after enduring decades of unfairness and inaccuracy in the values the city uses for real estate taxation, Philadelphia completely revalued properties for taxation purposes a few years ago -- but we have not continued to annually reassess properties despite the fact that it is required by law.  As a result, more recent increases in property values are not being taxed.  During his campaign for Mayor, Jim Kenney often spoke about how the inaccurate valuation of city property, specifically vacant land, was a problem that, if corrected, could generate millions more each year for the city and school district budget.  He's absolutely right.  If we properly value city real estate, we can generate much more revenue without raising tax rates. 

Policies in place across the nation prevent vulnerable homeowners from being "taxed out" of their homes and blunt criticism of the Real Estate Tax.  Circuit breakers, which reduce Real Estate Tax increases for those with fixed incomes and buffering programs, which bases assessments on rolling, multi-year averages to prevent spikes in tax bills, continue to be excellent options to protect vulnerable homeowners so that local government can best use the Real Estate Tax to generate revenues.

Tax Credit

Philadelphia has never had much of a deliberate or thoughtful approach to taxation.  Instead of making taxing policy, we have generally made spending policy then figured out the politically easiest way to find the money.  As a result, politicians who have wanted to avoid taxing homeowners (who vote), have created a tax structure in Philadelphia that is onerous, uncompetitive, and horribly regressive -- and a city with a devastatingly high poverty rate.  

We don't have to continue to make the same poor decisions.