Taxation Without Cessation

(February 2012)

After four straight years of raising taxes, you didn't think Mayor Nutter and City Council would break their streak, did you?  Hold onto your wallets, because we are in for another tax increase this year.  While the City budget and new tax rates will not be finalized until May or June, when I shake my civic Magic 8-Ball and ask if more taxes are on their way, it says, "signs point to yes."

As we may remember, our leaders raised the Parking Tax in 2008 while continuing the City's slow-and-steady schedule of reductions to the Wage and Business Privilege Tax.  But then, the economy tanked.  The tax cuts were put on hold and the Mayor and City Council enacted a series of "temporary" tax increases to make ends meet.  It was a doubling of the City's Sales Tax in 2009, then a 10-percent increase to the Real Estate Tax in 2010, and another four-percent increase to the Real Estate Tax in 2011.

Well, it is now 2012 and the economy is still sluggish.  The cost of government continues to rise.  Those "temporary" Real Estate Tax increases are set to expire this year so City Hall is back to the drawing board -- or back to drawing from taxpayers' wallets.

To maintain the revenue "take" from the "temporary" taxes, the City and School District budgets collectively need about $150 million and there are few places in the budget to readily find that kind of cash.  Saving that kind of money would require significant layoffs or major negotiated changes to health or pension benefits.  Of course, some jobs, like those of the 13 former staffers to the City Councilmembers who left office at the end of 2011 only to be quietly hired by Mayor Nutter, are a lot less necessary than others.  Creative, promising long-term solutions are complicated and could take months to pull together.  For example, major asset sales that would generate money to fill up the underfunded Pension Fund, which would then reduce annual pension costs could make sense.  Alternatively, a top-to-bottom overhaul of tax-enforcement efforts could eliminate tax evaders and tax delinquents who owe, and do not pay.  

The path of least resistance -- and the one the Mayor and Council have hiked again and again -- leads to another round of tax increases.  Maybe the Mayor will take a third crack at a tax on sugary drinks.  Perhaps there is a tax on carbon emissions brewing in our sustainable city.  Could there be a tax on Philadelphia sports team playoff disappointments?

Sadly, I fear that City Hall will go to the same well again this year and look for homeowners and property owners to pay more in Real Estate Taxes.  They might, however, decide to avoid the front door to our properties and, instead, opt for the backdoor tax increase.

In the midst of all this talk of budget gaps, the Nutter Administration has announced plans to remedy decades of unfairness in Real Estate taxation by setting proper and legal values for all properties in Philadelphia.  As we all know, currently, some properties are grossly undervalued for tax purposes and, therefore, do not pay their fair share while others are overvalued and pay too much.  Fixing this problem would finally bring sanity so that, for example, all homes that are valued at $100,000 pay the same tax bill.

But while fixing this problem, Nutter Administration officials quietly admit that in addition to making the Real Estate Tax fair, they should also make a little more money for the City.  The Mayor would like the Real Estate Tax to bring in enough to continue those "temporary" increases and then more on top -- a total of about $200 million more, even though those expiring taxes only represent about $150 million.

Any pushback against another tax increase will be met by the familiar refrains of "you show us what you would cut" from City Hall insiders.  No matter how many alternative are offered, they will always conclude that they know best.

I'll keep my fingers crossed and continue to demonstrate that we CAN avoid a fifth straight year of tax increases, but I am not optimistic.  Even worse, I am afraid it will not get better soon.  If we get through this spring unscathed, the "temporary" Sales Tax increase expires two years from now.  Taxation without cessation, indeed.