- And this blank page where my fingers move
- Pennsylvania Hunger Games Diet: Cash for Corporations, Cuts for Kids
- The Incredible Shrinking Mayor
- Multi-tasking with the 1% … killing the schools AND making the poor pay for their funeral.
- Council Can Give the SRC the Money to NOT Privatize the System
- Predatory Payday Lending Bill Flies Out of Cramped PA House Committee
- Let the Games Begin: PA Senate Announces Details of Budget Proposal
- Good News on PA Revenue But Don’t Count Your Blessings Just Yet
- Defeat Corbett
- Set off without a Paddle: Unpacking the School District’s Disaster Capitalism
If this is not a call for wide ranging tax reform (not saying cutting, but reform)
Submitted by raideradam on Fri, 02/23/2007 - 1:51pm.
http://www.philly.com/mld/philly/16762667.htm
But at every other level, Philadelphia was the most heavily taxed of the nation's largest cities, with the highest rates falling on the people with the lowest incomes.
Agreed
We need tax reform. The only proposal for reform that I'm aware of has come from Fattah, who wants to abolish the gross receipts tax while making up the revenue with a net profits tax. Whether you like that proposal or not . . . and I think it's a step in the right direction . . . it's reform.
Check that: Nutter has also called for real estate tax reform which would shelter some low income home owners. Unfortunately, he fails to suggest how to pay for it. So it's really tax cutting, though at least progressive.
Fattah, Nutter and Tax Reform
Crossposted in the Comments thread here:
I think both parts of this statement are misleading. Virtually all of the candidates have called for the elimination of the gross receipts portion of the BPT. I'm confused about whether Fattah is planning to set the rate for his net profits tax above the 6.5% of net profits already collected under the BPT -- I haven't been able to find anything in the campaign literature or anywhere else that says (even roughly) what the percentage would be or how this change would ultimately be revenue neutral. (If anyone could point me to this information, I would greatly appreciate it.)
Also, just to speak up for Nutter's plan -- from what I understand (mostly from this Inquirer article) the reduction in property tax increases above 10% for low-income home owners would be paid for by a restructuring of the current 10-year property tax abatement. Under Nutter's housing plan, Nutter "would ask City Council to increase future abatements to 15 years in neighborhoods where there is little new housing and cut them to five years in areas where development is strong."
In general, my sense of Nutter's tax policy is that very little of it actually boils down to supply-side "voodoo economics." Most of his proposed cuts on wages (note that I'm not sure whether he plans any future cuts in the wage tax) and the BPT (where he wants to eliminate the gross receipts portion and reduce the net profits to the level of the wage tax) would be compensated for by reducing property tax abatements and possibly increasing property taxes, especially on businesses and in areas that are already well-developed. This, at least, is the sense I get from his comments in this excellent Inquirer article from last April, where he says,
Note also this bit of data from the same Inquirer article:
To me, Nutter's move to insulate low-income residents from property tax increases seems like a way to head off the criticism that property tax increases would disproportionately hurt Philadelphia's plentiful lower-middle-class homeowners. It's a difficult issue to broach, largely because of anxieties about increasing property taxes, gentrification, etc. But I suspect that if Nutter were mayor, the BRT would "reevaluate" a lot of undervalued commercial properties, a la the recent flap with the casinos.
One last point about property taxes. It may be impossible to underestimate how much more revenue the city could utilize if it were the least bit serious about collecting property taxes. There are huge outstanding monies, ranging from deadbeat landlords to major institutions (cough -- Penn! -- cough) that regularly fail to pay their property taxes.
Here's a quote from Ed Schwartz from the Institute for the Study of Civic Values:
In most cases, when a candidate says they'll save money or pay for programs, through more efficiency and rigorous collection policies, they are simply blowing smoke. But in Philadelphia, this is absolutely true. And any candidate who can both set an example and hire and promote good managers in this and other areas of city government can make the city immeasurably better.
Something doesn't add up
Don't know, but it seems to me that those abatement reorderings are seeking to pay for a bit more than they're worth. If you're going to cut some abatements to 5 years, and then extend others to 15 years, I don't know if that saves a dime, frankly. And however worthy Nutter's effort at shielding low income homeowners from taxes might be, and I think it is, it will still cost money. So if he's cutting the BPT -- and as I've indicated elsewhere, I'm really not sure how sharply he intends to do that -- I don't see how his property tax plans pay for that.
As to Fattah's BPT plan, you won't find much more detail then you'll find about Nutter's property tax plan. But his statement of intent on that is clear and precise. He intends his shift to a net income tax to be revenue neutral. And he has no record on the tax that would cast any doubt on the sincerity of his intent. Whether once he gets in office he would, in fact, conclude that such a change would ratchet the net income tax too high, I have no way of knowing. But to me, intent matters.
Numbers, numbers
I think it's fair to assume that the five-year abatements would apply to properties that are worth a good deal more than the properties meriting fifteen-year abatements. In other words, this would make the tax abatement program more progressive -- now, it's primarily applying to new high-end rowhouses and condos in and around Center City, which many people see as lost revenue.
But I'm with you -- the Nutter campaign should produce projected numbers on this, and justify them. Don't any of the campaigns have accountants or economists on staff? Or is this why Philly's budgets are always a mess?
Confused
Maybe you can explain this to me, but Fattah wants to get rid of the gross receipts portion of the BPT (like everybody else) and start a “new” tax on the net proceeds? I’ve taken this one of three ways: (1) he intends to have two net proceeds taxes, (2) he’ll just increase the net proceeds tax, or (3) he didn’t really do his homework and just wrote something down that sounded nifty. I’m giving him the benefit of the doubt and going with (2), but maybe you know something I don’t.
Still, relying on the net profits tax instead of the gross receipts tax still puts a heavy burden on small businesses. I'm inclined to agree with Nutter: shift the tax burden to larger businesses through a more progressive property tax.
It's number two
Personally, I'd be just as happy with a two-tiered real estate tax which taxes business more heavily than residential properties and raises the same amount of money as whatever part of the BPT is cut. That's something Marc Stier has proposed. But it would probably run afoul of the Uniformity Clause, and require a constitutional amendment. I'm not aware that Nutter has proposed the same thing, unless you're saying that his plan to cap annual property tax increases amounts to the same thing. It doesn't.
Businesses and property tax
I can't find the article I was looking for - Nutter was basically calling for businesses to pay their fair share of property taxes to take some of the burden from the business privilege tax (and make the gross receipts portion unnecessary). If I'm not mistaken, it was tied to the 10 year tax abatement. For example, the CIRA Center is subject to the 10 year tax abatement, but rents to some of the largest law firms and businesses in the city. By decreasing the abatement to 5 years in hot areas like Center City, Art Museum and No-Libs, and increasing the abatement to 15 years in places like Strawberry Mansion and Kensington, the burden would be more on the wealthy and big businesses. This would not only make the abatement more progressive, it would ultimately decrease lost revenue from the abatement. The millions of dollars recouped in eliminating 5 years in hot areas would more than outweigh the hundreds of thousands that would be lost increasing the abatement by 5 years in less affluent areas of the city.
Also, if it's number 2, isn't it a little misleading to call it a new tax when it's not a new tax, but an increase on an already existing tax? But then, Fattah would have to say, 'I would raise the net profits portion of the BPT.' Has he actually made that statement yet?
It's hard to weigh the impact of abatement shifts
in more than very broad terms, as you've done. One thing we know, it wouldn't have any impact for five years, when some of the abatements would end a bit earlier. And Nutter has been very vague about the boundaries he would draw around the new abatement zones, making it even more difficult to know what the revenue impact would be. All in all, it doesn't sound anything like a complete answer to replacing revenue lost from sharp BPT cuts.
As to Fattah, he's not looking to head directly into the buzzsaw by characterizing his proposal as you suggest. So he was, indeed, a bit cute about how he explained it. Bottom line, however, it's a much different policy than that of Nutter, Knox and Brady.
Btw, as previously discussed here -- and, no, I don't have any precise numbers -- if the base of the "new" net profits tax were increased to tax industries that now get a tax preference, like banks, insurance companies, brokers and utilities, the rate might not have to increase as much, or at all.
Cira Center is a bad exmaple
It is a KOZ, which I am sure is the much bigger reason for the relocation as opposed to property tax abatement.
If I also recall, some of the reasons for increasing property tax on commercial properties is to help subsidize their strain on the storm water drainage.
Can't be that hard
The inability to determine the impact of the tax abatements depends on whether you believe taxes have an impact on a business' decision to locate somewhere or not (and also individuals). And also whether you believe the tax abatement has been the spurring force behind the recent real estate boom. Many people on this board like to argue, (1) taxes are not a motivating factor on a company or individual's decision to move, and (2) the tax abatement is not the cause of the real estate boom. In order to make your argument that "its hard to weigh the impact of abatement shifts," you would have to admit taxes DO impact people and corporation's decisions to move, and that the abatement HAS been spurring the real estate boom. If these statements are not true, however, it should be relatively simple math to determine the impact.
Also, while the Cira center may be a bad example, I'm more than certain there are plenty of good examples of large businesses that make a heavy profit but have been able to avoid paying taxes because of the tax abatement. And while it makes sense to raise taxes to pay for the structural impact these new developments will have on the city, I think it's also fair to say only a portion of properly apportioned taxes would go to this while the rest would be surplus that could be used to decrease or eliminate the gross receipts portion of the BPT (if the cost was that high, the city wouldn't have been able to afford to approve zoning in the first place). In fact, assuming the city functions in a rational manner, it has already included the added infrastructure cost of the new projectsinto the budget. In that case, any added revenue would be surplus.
To nitpick a bit
You posted the follwing:
Given that about a year ago, median home prices in Boston were about $430,000, and in Philly about $230,000, I'm not sure what your quote tells us about the relationship between property taxes, economic growth in Boston, and the implications as to how benign raising property taxes in Philly might be.
Good call, D.E -- I hadn't
Good call, D.E -- I hadn't spotted that they weren't comparing similarly priced/valued homes.
It's certainly clear that compared to our near neighbors in the the suburbs in Montco and NJ, Philadelphians pay much less in property taxes, even for the same property values. Of course, this is also an unfair comparison -- NJ property taxes are disproportionately high, and most of the suburbs draw almost all of their revenue from property taxes while Philadelphia doesn't. And -- oh yeah -- the suburbs get good schools and services for their money.
But the deeper point is that we could raise property taxes, especially on commercial property, without getting anywhere near the tax rates in the burbs. And if Nutter's right, raising property taxes wouldn't be a deterrent on business development at all. Raising commercial property taxes seems to me to be a perfect counterpart to reducing the BPT and (perhaps) the wage tax. It neutralizes any suggestion that you're just giving businesses a break, and shifts more of the tax burden onto the people who hold the largest properties in prime real estate in the city.
Again, it makes our business tax more progressive. Sunoco, McDonald's, or Yum Foods can shift their profits elsewhere, but they still have to pay taxes on their property in the city. But the woman who wants to open a bookstore in Oak Lane or the man who wants to open a coffeeshop in Olney has a much better chance.
And Mont Co isn't charged
And Mont Co isn't charged wage tax. You can't compare property taxes to property taxes since city tax revenue is not just off property tax.
Still not quite getting the logic on property taxes
Why would businesses be less concerned about commerical property taxes than they would be about the BPT? I guess that businesses that have a relatively small portion of their fixed assets tied up in property might like the trade off - but what about businesses on the other side of that scale?
I wouldn't think
I wouldn't think so.
Wouldn't you price non-profits and low volume retailers (say bookstores for example) out of downtown by doing that?
Businesses worry much less
Businesses worry much less about property taxes than they do about taxes on profits, wages or receipts. For one thing, in many cases, especially small businesses, they don't own the buildings they're in, but lease them. Rent is much less a function of property taxes than is demand for the space. Essentially, a property tax reduction would hit the owners of CC commercial buildings, who are making a killing right now.
On the other end, you could easily build in abatements and credits for owner-operators and folks who live above their stores. And Philly's property taxes would still be lower than in other municipalities.
Supporting Michael Nutter for Mayor.
That doesn't add up to me
For businesses that rent, their rent will go up if the owners of the property are paying more taxes. So that negates the "progressive" aspect of increased taxes for small businesses that don't own property.
Obviously, businesses that do have a relatively large percentage of fixed assets in property won't gain much benefit from shifting the burden from a BPT to a property tax.
It seems that the progressivity would come from playing with the abatements in higher value areas versus lower value areas. Fine. But how many businesses are going to be moving into the lower value areas to take advantage of that? If it happens, great. But sorry, I'm not sure how many businesses think that the benefits of relatively lower property taxes in depressed areas will be worth the obvious tradeoffs there.
Ok, so now we're down to focusing on the businesses that already own property in depressed areas being the ones that will like the tradeoff. That seems to me like a pretty small sector to base massive tax cuts on without insuring that the changes can be easily reversed if the magical increase in tax revenues don't materialize. And besides, I thought the whole rationale for cutting the BPT is that it will attract or retain businesses?
Yes the rate would have to
Yes the rate would have to be higher to make up for it. Basically, to figure out the new rate, you just need algebra.
** Imaginary numbers from this point on
Say we currently generate 1,000 dollars business taxes on our current system.
Say net profits reported by all businesses from that year was 20,000 dollars.
So, to get the same tax revenue, you divide total revenue by total net profit.
In this example, the net profits charge will be 5%.
So, to figure out the real percentage needed, substitute the real figures from last year.
The irony of this finding is
The irony of this finding is that ...
Aren't Democrats supposed to be the ones for the working class and the republicans supposed to be the ones that tax the rich more than the poor?
Oddly enough, 50 years of democrats in power have it reversed ... Goes to show you party platforms really don't hold much weight.
Rich people can move...
you have a city of high taxes, rich and middle class people can move away to lower taxes. Poor people are stuck.
My point is, you have 50
My point is, you have 50 years of government that has been of the "democratic party" that has the main platform and ideal of being champion for the poor and working class and they have helped generate a city that taxes the lower income the worst, proportionally, in the US.
I think it is ironic and says a lot about political parties.
It is a pity that
the Democrats often say one thing and do another, and that's why we need a reform movement to hold their feet to the fire.