Just what we Need! A new City Council Tax Break for the .0000. . . . .1%!

Hey, did you tune in to Bill Green's press conference on his bill to eliminate City business taxes on hedge fund and mutual fund companies and managers? Did you see the two day wall to wall coverage by the Inky on the role of these once upon a time taxpayers and the pros and cons of letting them become freeloaders? You didn't? Oh, that's probably because this is a totally stealth deal that none of the moving parties has actually wanted to talk about. Yes, the bill was introduced like any other bill, but without a word being said in the press about it. Yes, it had a public hearing last week, but without a word being said in the press about it. Yes, you can look in vain for the press release on bill 120007.

If you look it up on Council's database, you'll find that after its hearing, Bill 120007 was amended (who knows how) and reported out of committee with a recommendation that the rules be suspended to allow first reading at the next session of Council. That means that it's on a fast track for approval. Waiting all of two weeks before Council passes it is a no-no. It's apparently an emergency to establish that next year our dearly beloved local hedge managers and mutual fund managers will pay no business or net profit taxes. Philadelphia can only wait one week to get that vital interest taken care of after Council's Finance Committee rushed to the rescue last Tuesday. How much will Bill 120007 cost the City, a City that is losing over $40 million in state social services funding next year if Corbett has his way (which he probably will)? Who knows? Who cares? Let the good times roll for the really great corporate citizens of hedge fund and mutual fund world. Let's bring all the white collar bandits to Philadelphia to bring us their tax revenue . . . or, oh, I guess not that. I guess we just get the bragging rights.

Go Philly hedge fund managers! That's the best I can do. Anybody come up with a better cheer?

Any update?

I've out of town and hanging out with my kid who is home from college and just saw this. This sounds like an incredibly bad idea.

And it's also morally reprehensible

There was an article I read a few days ago that talked about the need for liberals to start using the language of morality again. The right has somehow wrapped the most atrocious policy ideas in the mantle of morality -- like labeling ideas that harm or even kill women as being "pro-family". In fact these policies are morally reprehensible, pure evil. Jesus, if he were around, would say so. Martin Luther King, Jr., if he were around would say so. Legislation that in the name of some far-fetched economic realism shovels dollars into the pockets of the already obscenely rich while social services for the poor are being ravaged, also needs to be labeled for what it is. And that is, utterly evil.

Today Bill Green Joined the Business Tax Abolitionists

At a time when the City is facing over $100 million in cutbacks to vital programs, its schools are crumbling, food stamps are being cut back and property taxes are about to be increased . . . at a time like this Bill Green has decided to announce his support for total repeal of all business taxes. These are his totally unqualified words from today's Daily News: "We really need to eliminate all business taxes." Period, no ifs ands or maybes. This tax is the third largest producer of internally raised revenue for the City, raising upwards of $350 million. Abolish it and you can start closing libraries, pools, rec centers and police stations.

Green has now officially joined the business tax tooth fairy brigade. That's the group of politicians who are so completely in bed with big business that they propagate the myth that cutting taxes increases revenue. That's right, tax less, make more. Those politicians today populate the Democratic Party as least as much as the Republican Party in towns and states all across the country. Democrats may revile endless tax cutting for the rich and well-heeled at the national level -- although they look for ways to slip bennies for big business into what they do all the time -- but at the local level it's just shove those tax breaks out the door.

Of course there's another way of looking at Green's statement, a final, fumbling effort to justify the inexcusable, his fronting for today's bill that when passed by Council -- probably unanimously -- will eliminate all business taxes on hedge funds and hedge fund owners. Read the DN article on this travesty and you'll see Green dancing all over the place looking for a reason to give this enormous benefit to HEDGE FUND OWNERS -- for god's sake. Yes, hedge fund owners, that incredibly horrendous group of folks who just a few years ago were seen dismantling our economy brick by brick. Ultimately he just can't justify it. So he finds his inner Ronald Reagan. DOWN WITH TAXES FOR ALL (except for any poor suckers who can't afford to lobby me.) And that's today's leading candidate to be the next Democratic mayor of Philadelphia. He's counting on us, those of us still allowed to vote in 2015, to let it happen. NOT ME.

With Brett Mandel cheering him on

Brett Mandel, who demands that the city be absolutely scrupulous in following the procedures laid down in goo-goo heaven when it comes to the real estate tax has concluded that playing favorites with the business tax is OK because the "city has to do something" about onerous taxes.

Somehow the city doesn't "have to do something" when it comes to he education of our kids or when it comes to bringing in more revenues. But the city does "have to do something" when it comes to cutting business taxes.

On the language of morality

I'm of a mixed mind about the long-term effectiveness of using such language - and about the ability of the left to be nearly as effective as the right in using such terminology.

Here's a book on a related theme that I think is interesting:

http://www.amazon.com/Righteous-Mind-Politics-Religion-ebook/dp/B0052FF7...

Not saying that it's easy

but I don't know why we shouldn't say what we feel about issues that provoke a moral response. It lets us be our genuine selves. And clearly moral sentiments have from time to time moved history in a better direction. Abolition of slavery, segregation and discrimination against women, gays, the handicapped and many others have been prompted, in part, by moral outrage. So should policies that take money from poor and working class people and hand it directly over those who already have much too much.

Yeah - good points

... but as I said, I'm of a mixed mind. I agree that we need to be genuine, and the effectiveness of the moral clarity and moral rhetoric of someone like King certainly presents a strong argument. However, looking at the bigger picture - I also see some relevant and interesting questions with respect to the underlying characteristics of how humans approach debate. From the book I linked:

The central metaphor of these four chapters is that human beings are 90 percent chimp and 10 percent bee. Human nature was produced by natural selection working at two levels simultaneously. Individuals compete with individuals within every group, and we are the descendants of primates who excelled at that competition. This gives us the ugly side of our nature, the one that is usually featured in books about our evolutionary origins. We are indeed selfish hypocrites so skilled at putting on a show of virtue that we fool even ourselves.

But human nature was also shaped as groups competed with other groups. As Darwin said long ago, the most cohesive and cooperative groups generally beat the groups of selfish individualists. Darwin’s ideas about group selection fell out of favor in the 1960s, but recent discoveries are putting his ideas back into play, and the implications are profound. We’re not always selfish hypocrites. We also have the ability, under special circumstances, to shut down our petty selves and become like cells in a larger body, or like bees in a hive, working for the good of the group. These experiences are often among the most cherished of our lives, although our hivishness can blind us to other moral concerns. Our bee-like nature facilitates altruism, heroism, war, and genocide.

Once you see our righteous minds as primate minds with a hivish overlay, you get a whole new perspective on morality, politics, and religion. I’ll show that our “higher nature” allows us to be profoundly altruistic, but that altruism is mostly aimed at members of our groups. I’ll show that religion is (probably) an evolutionary adaptation for binding groups together and helping them to create communities with a shared morality. It is not a virus or parasite, as some scientists (the “new atheists”) have argued in recent years. And I’ll use this perspective to explain why some people are conservative, others are liberal (or progressive), and still others become libertarians. People bind themselves into political teams that share moral narratives. Once they accept a particular narrative, they become blind to alternative moral worlds.

I'm mulling over how to reconcile the underlying tribalism of human nature, with the nexus of morality and political orientation. And on top of that, I'm mulling over the logistics and practicality of framing political arguments in moral terms. I think that we need to be, as a rule, highly skeptical of our own all-to-human tendency to create a moral hierarchy. But on top of that, in today's political world I question how effective it is to frame debate in moral terms. With the explosion in rightwing media, does it in the end effectively enhance the persuasiveness of the moral arguments of the right and only make our own ideology more vulnerable to attack? Maybe we should let them impale themselves on their own righteousness, ala Rush Limbaugh, and stick to the less moralistic analytical nuts and bolts?

Just some stuff I'm throwing around.

Finally some press coverage and a response from a member

of Council.

Dan pointed me to this article in the Inky today: http://www.philly.com/philly/news/pennsylvania/20120322_Councilman_Green...

The article, and a message I got from a Council member says that the bill will encourage fund managers to move to the city and that they will pay "wage and other" taxes. But keep in mind that the reason hedge fund managers have received national criticism is that the compensation for the every day work they do is counted as lower taxed capital gains not as income. So it is not clear they will pay any wage taxes to the city. And the article says that there are two fund managers in the city now. So taxes can't be the only reason they are not here.

There is just no reason to rush through a bill like this. Let's find out how much it will cost the city and what the potential benefit will be.

No Net Profits Tax for These Folks Either

You're right, Marc, they won't pay a dime in wage taxes because they're probably organized as partnerships or some other kind of non-corporate entity. So they earn profits. The taxes on that part of profits that is usually taken as the equivalent of wages is taxed under the City's Net Profits Tax. But bill 120007 exempts them from that tax as well, including the part that's paid to PICA to defray the City's bond obligations to them. They will be here only to spread their good will. Don't you feel it already?

And don't forget the visitors

The DN reports this bizarre idea that people who invest in hedge funds will "come to Philly." I guess this means that organized criminals with satchels full of cash will be visiting the city because they are the only ones who invest in hedge funds with cash.

Or maybe other rich people will travel to the city to take a look at the computer screens of their investment managers right between a visit to Independence Hall and the Betsy Ross House.

And you thought the stadia were a waste of money to entice people to visit the city. On a cost per visitor basis, I don't think you can top this idea for dumb incentives.

They passed it 16-1 with Councilman Curtis Jones the only one

member with the courage to stand up to Green and the robber barons. Congratulations Councilman Jones. We will remember.

Bill Green, Bill Green, Bill Green

I just sent you an email (bill.green@phila.gov) asking that you use this forum - one that you have used many times in the past to promote your ideas and accomplishments - to address the issues raised in this post.

I am one of your constituents, and I think this is a great forum for you to use to demonstrate your accountability in representing my interests.

Check out Facebook response to Marc Stier

This was announced in December in a press release. It costs no money. It will result in net new revenue. I can't believe you guys are discussing morality and King. That is why there is no point in responding to Stan. It's a thread full of bad facts and the application of national policy to a city. You can't escape Uncle Sam. To escape City taxes just cross city line ave. Did I mention it costs us nothing.

I am not starting a thread here. Check out the facebook response to Marc Stier.

Interesting, I see no FB reply to anyone

It would be good Councilman if you would just put a link up here to allow folks to meander over to where you're discussing the merits of this on FB. In any event, I'd like to reply to some of the assertions that you decided you would put up here:

1) I put up "bad facts." Obviously I need to check out your FB reply, wherever it is, to find out what my bad facts are. All I know now is that most of what I said substantively about the bill is in today's DN article. If you're taking issue with what I said about no notice to the public because you sent out a press release in December, I never saw it, and apparently the press never covered it, at least as far as I can tell via the Google. So it might have been worthy of some additional notice when you actually put it up for a hearing. And then you might want to tell us, if you welcomed feedback on this, why you moved to suspend the rules to rush it through Council. Was this some kind of emergency?

2) My post involved "the application of national policy to a city." What national policy? If there's a policy that hedge fund managers who drove this country into a ditch should be sanctioned for their conduct, I'm not aware of it. I wish I were. But more importantly, if what this industry did to this country was immoral, as I believe it was given all the suffering that it's caused, then I don't understand why any government -- city, state or federal -- would give them special exemptions from the taxes that thousands of others pay. I just don't get that. Sorry.

3) "You can't escape Uncle Sam." Yes you can, as Warren Buffett has repeatedly pointed out. And as I pointed out above, whether you can or not is irrelevant to how Philadelphia treats them. Btw, the City of Philadelphia started the ball rolling against apartheid in South Africa by barring the City pension fund from investing in South African companies. You could say that apartheid was none of our business either and we should have left the issue to the State Department. I would disagree.

4) "To escape City taxes just cross city line ave." Yes, but people want to live and work here because it's a great City. We collect $350 million a year from businesses that haven't done the obvious thing and move to cross City Line Avenue. (As you know, that wouldn't help many of them save on their gross receipts tax anyway.) They must think this City is pretty good. Indeed, in business development districts across the City, they've voted to increase their taxes to pay for increased services. If we make this City all that it can be, that's the way to bring businesses in and get more revenue. We don't have to sell ourselves short by begging and bribing them to come.

This argument is what Chambers of Commerce use to shift the burden of taxation to the 99% at all levels of government. We hear that states can't tax corporations or the rich because they'll go to other states. We can't tax them at the federal level because they'll go to South Korea. So bottom line, we can only tax the poor, or failing that, eliminate programs that try in some small way to level the playing field between the super-duper rich and everyone else. We've seen how that philosophy has worked out, Councilman; some of us who call ourselves Democrats don't like it. Not too long ago you didn't either.

To Dan, Stan and DE II

I apologize for not using this forum but from the tone of Stan's original and subsequent posts there is no way to have a logical or reasoned discussion on this issue. I would be responding for the next five days. Having responded on Facebook already to Marc Stier on the comment section of his post and Brendan Skwire on the comment section of his post I simply referred you there. I don't know how to dual post but for the reasons above and below I did not see the point.

I have lots of constituents and Stan is one who has strong views. I talk to Stan a lot because he is engaged and often in council. I applaud him for that. When he agrees he is vehement and when he disagrees he is vitriolic. What is the point. The body of your work is not what matters.

Before getting to the issue I need to explain the "morality" of the point, what MLK would have thought about the point, the common (and not secret or rushy) practice of moving bills after one week. One is spending most of the time defending ones motives and subjective intent rather than discussing the merits of the policy. If Stan disagrees you have an evil motive and are obviously a bad person (until he agrees on the next issue). It is never simply a policy difference. If I try to respond just on the merits his response will not be just on the merits.

There are some people you can't rub the right way. What can I say.

That being said, for DE and Dan, I'll try and see how it goes.

We are the fifth largest City in the country and have two or three funds not in KOZ's. How many do people think are in Boston, NY, SF, San Jose, Austin, Chicago, LA, Atlanta. There are more of these funds in EACH of Conshy and Bala Cynwyd than Philly. A new fund just opened in Wyndmoor. They are not here because of our taxes. Some will move in. Some will come from Jersey and New York

This bill is largely a codification of existing regulation and private letter rulings from the Revenue Dept. The funds already here rely on them to pay essentially no taxes, including NPT (by using an address outside of the City for the General Partner and meeting outside the city NPT of this partnership is legally avoided).

Funds don't trust regulation as permanent and as fiduciaries can't give 6.45% of their income to the city instead of their investors. If they had to do so, no one would invest in those funds because the funds would need to return 6.45% more than funds not in the city to compete. The fund business is a national business, you need no regional proximity, you need returns to have investors (and be able to provide jobs). If you all help me get overall tax reform and we won't need targeted measures like this and as was done last year to level the playing field for manufacturers (which actually cost money) for example.

There will be announcements soon of funds moving into the City. The funds are funds that invest in businesses that create jobs like venture, private equity and real estate funds. I'll take a hedge fund too if they would exist elsewhere, create jobs and pay wage taxes and don't break any laws (the feds should regulate hedge funds).

That is my best shot while avoiding the non-substantive distractions. Until we get overall reform, we should keep doing this industry by industry where it costs us basically nothing.

To Bill Green

Thanks for the post, Councilman. That was an interesting evaluation of my personality and character that you put up in the first half of it. However, if it’s alright with you, I’d rather discuss Bill 120007. Looking at it again, I have some questions that you might be able to answer. Frankly it’s pretty unclear who is eligible for the tax exemption that the bill creates. So, if you would, please tell us:

1) Exactly what kinds of companies and managers are made eligible for the exemption? It seems from the text of the bill that both regulated and unregulated investment companies and managers are excluded from tax. Certainly all companies regulated under the Investment Act of 1940 are exempted, but the bill says that companies that are not regulated under 8 separate sections of the Investment Act will also be tax exempt. Could you explain to us in layman’s language what kinds of companies those are?

2) Do any of the exempt companies or partners engage in naked short selling, a tactic that some people think was a main factor in the financial collapse of 2008?

3) Are any of them synthetic commodity traders who, according to this article, may be responsible for the next asset bubble and the next market catastrophe?

4) Why does the bill require that for an individual to be exempted, he or she must be an owner or general partner of a company that “is not publicly traded”?

5) How was the bill amended in Committee, and to what end?

6) If as you said in your post above, that it’s not enough for companies interested in locating in the City to have the protection of mere regulations, why does the bill authorize the Revenue Department to issue regulations exempting still more companies? And why would those regulations potentially offer the exemption, as stated at the end of new Code Section 19-2601(7) “to the activities of an entity or natural person that are substantially the same as those [otherwise exempted by the bill] whether or not the investee entity is publicly traded.”?

7) Who wrote the bill?

Also, you said in your post: “I'll take a hedge fund too if they would exist elsewhere, create jobs and pay wage taxes and don't break any laws.” Is there anything actually in the bill that holds exempt hedge funds to the standards you laid out in that sentence? To any standards?

Here’s a question not directly related to the text of the bill: do you believe that Council should assert the moral values of the City by refusing to provide benefits to companies engaging in anti-social behavior? Suppose what they do might bring down the entire global economy along with any chance at all that the City can climb its way out of the hole that the 2008 financial collapse dug for it?

Pending your answers to these questions, here are my two biggest problems with the notion that any industry, company or person who promises to bring jobs to Philly should, just for that and with no performance test, be given a tax break:

1) there is no end to the list of companies that will demand special treatment once a few of them get it; they all insist they will create jobs;

2) the only logical result of the process of saying yes over and over again to such companies is to abolish the business tax overall, the conclusion you apparently came to when you said to the Daily News on Thursday: "We really need to eliminate all business taxes. If we continue with the current tax structure, we'll collapse from our own weight."

And finally that statement leads to one last question: Were you misquoted? Because in your post above you said you were interested in tax reform, not tax repeal. But then you seem to put the onus of getting tax reform passed onto YPP readers, when you say: “if you all help me get overall tax reform . . .” you (Bill Green) wouldn’t need to create industry by industry favors and then eventually repeal all business taxes.

I must say that your interest in repeal seems more deeply held than your interest in reform. Pushing a tax bennie for some vague assortment of funds and fund managers – while failing even to introduce a tax reform measure this year - is a strange way of sending the message that you want progressives to help you with overall tax reform. But, please, show me that I'm wrong about that. I really want to be convinced.

Your original reply to my post to Dan, Stan and DE II

Made my point. Where is that post conflating organized crime to people investing in businesses?? It says it all. Even the post you left demonstrates the point, it's never just a policy difference.

In response to the above second and still posted response:

1) As previously stated, any kind of fund, venture, private equity, real estate, etc. They are not companies, they are funds, acting as fiduciaries, investing other peoples money and providing a return.

2) It applies to any fund. I hope we create a lot of jobs in Philadelphia. Hey, the Philadelphia Stock Exchange permits short selling (as does every other exchange in America), perhaps we should throw them out of Philadelphia and their thousands of direct and indirect jobs? (They actually moved out in the sixties when we decided to tax each transaction. The tax was quickly repealed and they moved back in--perhaps we should have kept the tax to make a moral point (which I guess would be we don't want jobs involved in creating a liquid market in companies that could be doing something other laws already prohibit or should prohibit??). Tax policy is not in a vacuum, those taxed will react--they can move out of a city much easier than a country.) This is not relevant to whether the city will create jobs and increase revenue.

3) Will city tax policy prevent naked commodity trading? This is a question not at all related to 120007. See response 2.

4) Because the bill exempts private funds only.

5) It was amended to narrow the application and be more specific.

6) So if there is a fund that there is an opportunity to bring to the city that does not fall within our narrower definition the Revenue Commissioner will have the authority to make a determination to issue regulations covering it. Remember, even though we have only two or three funds today (as compared to Bala or Conshy as mentioned elsewhere which each have five times that number) they are here because of regulations and letter rulings.

7) My staff, the administration and the law department in consultation with lawyers representing the fund industry (good times).

Your final two points are statements of your opinion. The opinion of 15 council colleagues and the administration differs.

Thanks Bill

There's a lot to wade through in your post and in Stan's response - some of which is pretty technical for me to follow. I've only read through it briefly, but will take more time to try to understand it better. A couple of quick responses.

Like Romney, I'm not particularly concerned about the very rich. Unlike Romney, I am concerned about those among us who are worst off, financially. As Lou talks about bellow, the bottom line w/r/t this bill is whether or not it will return benefits relative to the costs, and also who it will benefit differentially. My instincts make me dubious that the benefits won't primarily flow to those who are already very well-off financially, but even if that does happen, I'm open to being shown that there will be benefits, short-term, to the city in terms of revenue.

As for the larger context - I might not be as hyperbolic as Stan, but maybe you should consider a bit more about the context of this bill. We have seen, over the past seven years or so, that hedge fund managers have leveraged their assets irresponsibly (sometimes up to 40 to 1) in order to return very selectively distributed (massive) short-term gains despite the inevitable reality of a devastating long-term impact distributed across a very wide cross-section of our society. This has been a very widespread phenomenon that speaks more generally to how the concentration of our economy in the hands of financial engineers has impacted many negatively to the benefit of a few. It would seem to me that you should be very sensitive to that reality, and accordingly approach tax cuts for hedge funds very carefully to make it abundantly clear that you aren't contributing to a system of financial engineering that is clearly negative in balance. At that level, also, it's important to establish that this kind of legislation don't have an "opportunity" cost. As part of the financial crisis, we have seen many times that municipalities have made decisions that brought short-term benefit to financial institutions rather than make more well-thought policy that creates a more sustainable gain to more people long-term. You need to show that this kind of targeted tax cut brings a greater return than tax cuts targeted, say, to bringing businesses into the Chelten Ave. corridor.

I see some middle ground between responding to all of Stan's rhetoric and responding to some substantial issues that he does raise. I'm sure that you realize that as a politician you need a thick skin, and vehement criticism does not lessen your obligation to: (1) be sensitive to the concerns of your constituents or (2) take great pains to make explicit the reasoning behind your actions that are done as the representative of those who elected you.

So - again, I appreciate your response. I hope that you and Stan can focus more clearly (with perhaps more consideration of those less technically versed) on the substantive issues here.

with all due respect Bill,

with all due respect Bill, you barely responded on my FB page. I didn't feel like I learned much from it, which is why I plan to call your office to follow up.

I have NEVER liked the idea of giving big tax breaks to businesses like hedge funds which don't actually produce anything. Everybody should be paying their share.

I'm not a facebooker

and it seems odd to me that on this occasion, you seem to think it isn't worth it for you to take the time to respond to Stan's post in some detail. Posting comments here, as you have done in the past, would provide a good forum for you to exchange thoughts on this issue with your constituents, to explain your actions, to read responses, etc. Why is this issue different than the other issues in the past when you've used this forum? The discussion I was having with Stan about morality and King is really a side issue (at least as far as I am concerned) - so for you to use that discussion as a reason not to respond to my questions about this bill seems invalid, IMO. On what basis, really, would you respond to a constituent asking you for an explanation for an action you did, theoretically on my behalf, by saying that I should go searching for another venue where you responded to someone else? Why would you tell a constituent that they don't merit answers to their questions?

There was a phenomenon in the past where some Council members used this blog to post many comments when they were seeking votes in an election, only to disappear after getting elected. That was a shame because blogs like this one offer a very useful vehicle for communication between politicians and the citizens they represent. I think that posting only when convenient for advancing a political career suggests a rather unfortunate attitude about accountability to constituents. I have found in the past that you were something of an exception (Wilson Goode has been also) in that you were willing to take the time to engage here with questions about your actions as my representative. I have appreciated your willingness to engage in the past.

I'm disappointed that you're adopting a different attitude here - but it certainly isn't too late for you to take up the issue now. In particular, I'd like to read about the evidence that you have this this move would be a net positive w/r/t revenue for the city.

My random prediction

Is that they are doing this for a tenant or something for an office building. However, the whole thing seems quite odd, in many, many ways.

Analysis

There should be only one question. Take all the jobs created add the tax revenues and the benefits to the public, i.e. monetary benefits of moving people from public assistance, food stamps and Section 8 housing to employment, moving people on to employer paid health insurance, etc. If it is a net gain to the public coffers then it is a good idea. If it is a net loss then it is not

There is no loss

That is the point, we have nothing to lose. Thanks for keeping it real.

As to the point

Let's focus on this. Perhaps there is nothing to lose (I mean we can't reduce tax income from businesses that aren't here, right?)

So that's one side, but..

What evidence do you have on which you base your determination that this is a net gain? How much tax revenue currently generated from taxing the hedge funds that are here will be lost? Are you really saying that there are $0 currently generated?

Surely, you must have done some analysis. Can you show some numbers? Can you elaborate on the amount of revenue likely to be gained? Can you use numbers from another city as an example? If you can't demonstrate substantive gains (outside of tax benefits to a select group who are already extremely wealthy, and whose business practices have had a dramatic negative impact to our communities), do you really think that there is no need to address the larger context and/or questions of conflict of interest?

Revenue Department

Revenue Department testified before council that it costs basically nothing and will be a net gain from wage tax and others. The fact there there are only two or three funds here (not in a KOZ) as compared to other major cities is also the case. We can't give specific numbers because of the amount of firms applicable is so small and the amounts are so small we would be violating taxpayer privacy (we had these same issues with previous reform).

The only people that will benefit are people not paying the tax now. The "benefit" to companies is paying employees potentially more wages to make up for the City's wage taxes when you move them into the City. And NOT paying Net income tax currently not being paid. The benefit to the City is having the jobs and investors and the ecosystems that venture and private equity funds create in the city.

The proof will be in the pudding but since it costs us nothing to entice these funds into the City by leveling the playing field as between, at least for business and net profits tax, being in the city and being out of the City. Of course, they are still subject to wage, sales, etc. taxes which will bring in more. But once again, we have lost nothing if they don't move in and the effort to create jobs fails. The gains can be demonstrated only once they are achieved.

City's should have clean and safe streets and try to create an environment that will attract businesses to employ its citizens. It pays for the former, in part, with the latter. It is hard to reflect moral judgements in a tax code. I would argue that municipalities don't really have that luxury but simply am not up to it.

I am not offended by Stan's post, that is I can take it, I am just weary.

OK, let's just deal with some facts.

Good questions, D.E. II. I'd also like to throw up some facts.

1) Bill 120007 provides two kinds of exemptions, one for the business income of an investment fund which is taxed under the City's Net Income Tax, and the second for the income received by the owners of that fund on which they pay Net Profits Tax.

2) When you said that no fund would locate in the City and pay 6.45% of its earnings to the City, you were talking about what they would pay under the Net Income Tax. But to the extent that a fund is selling derivatives, options, commodities, credit default swaps, or whatever else it sells, to people living outside the City, that income would not be taxed anyway in a few years under Bill 110554. That's the bill that you sponsored last year which provides that, after a transition period, only income derived from sales within the City will be taxed. Since I'm sure that all of these funds do have sales outside of the City, their actual Net Income tax rate would be quite a bit less than 6.45% even without Bill 120007.

3) The partner/owners of an investment fund now pay Net Profits Tax which is imposed at the same rate as the wage tax and is intended to capture the wages paid by partners to themselves out of partnership earnings. That tax is currently 3.928 for City residents, again decidedly less than 6.45%. Furthermore, that tax is deductible against federal income taxes, so that even if these partners are real clever about paying little federal income tax, they can deduct their net profits tax against whatever federal tax they do pay. Finally, 60% of the Net Income Tax paid can be taken as a credit against the Net Profits Tax under current law. But under Bill 120007, there will be no need to compute the final rate of this tax. It will be gone.

4) You could have exempted investment fund business income tax from the Net Income Tax without exempting personal income from the Net Profits Tax, or vice-versa and still given these folks a nice break. Then you could have seen how that worked, but for some reason you decided to give these already very rich people everything you could give them in one bite;

5) Your implication –- yes, I know you didn’t state this explicitly -- that none of this income is taxed in other cities or states is incorrect. New York City just last year rejiggered its tax code to make investment funds pay more under its UBT tax. The voters in San Francisco overwhelmingly did the same in a referendum in 2008. So at least in these two places, taxes on these entities are going up. Furthermore, I doubt substantially that there are no taxes in any other cities or states on the income earned by partners in these funds. At least two respected tax publications have noted that state and local tax issues exist for these funds. The Hedge Fund blog states: “Investors may be required to file state or local income tax returns in addition to federal tax returns. The investor should discuss an investment in a fund with their tax professional.” And KPMG in its 2010 article on Hedge Funds states: “State tax rates vary depending on residency of the partners.”

6) Fully 24% of all Pennsylvania hedge funds are currently located in Philadelphia. Pittsburgh trails with 8%, West Conshohocken with 8%, Berwyn with 7%. The rest are in some other part of the state. So apparently hedge funds haven’t been totally scared off by our failure to put our regs in the concrete form of ordinances. And, btw, do those regs and private letters you referred to, as they stand, actually exempt these businesses from both the net income and net profits tax as your bill does? Or does Bill 120007 give them more?

7) Taxes do not seem to be the exclusive, or even main, factor in hedge fund location. According to this site which shows the 12 best places for finding a good hedge fund job in the world, only two of the locations are deemed best due to low taxes. Other qualities listed include “low cost of living” (Dallas), “education spending” (Stamford, Ct.), “engaging cosmopolitan environment” (San Francisco) “richness of culture and character . . . and fascinating history” (Boston) “pleasant environment” (Greenwich, Ct.) “great food, sports teams, architecture, culture, and entertainment” (Chicago) The article mentions that hedge funds are thriving in many of these places despite a high cost of living.

8) No one knows how many jobs will or will not be created by Bill 120007 because the bill requires nothing of the companies and partners taking advantage of it.

Final Fact: Bill 120007 remains a disgrace.

If only they were all facts

1) Incorrectly misleading. The funds net income, which belongs to the investors (not the GP except to the extent if its share), and the NPT of the GP are exempt under the bill. They are not paid today however due to regulation, private letter rulings and the Delaware loophole. The status quo does not really change.

2) Incorrect with respect to 110554 which does not apply to those who don't sell goods (for example, it applies to manufacturers). This was accomplished through single sales factor. It does not help the services sector. What is the point of 2 anyway, are you in favor if it came into effect in a couple of years and actually did apply to funds?

3) Incorrect on numerous points. Investors in the funds pay, as individuals, the same tax they always would have. NPT is the wage tax equivalent and these people are not employees or consultants. Today private letter rulings are issued and are the only reason we have some funds. It is too easy to be in Bala and get all the benefits of being in the City.

4) This is intended to help people in Philly get jobs and to bring jobs in. Your statement does not appear to be a fact. Also, personal income taxes of all investors (other than GP) living in Philly is unchanged.

5) A cursory read of the NYC link demonstrates the factual inaccuracy of your statement. NYC is considering hiring an auditor to explore shifting expenses from the investment manager (typically these entities run the general partners and have expenses roughly equal to revenue so they pay almost no tax). In Philly's case the salaries of these entities are subject to wage tax and there would be business taxes if there is net income. The link on NYC specifically says that the General Partner's carried interest is NOT subject to it's UBT--this is codified by bill 120007 in Philadelphia which will level the playing field for us. SF new 1.5% tax can be avoided by simply not doing the work of the GP in San Francisco, as can Philly's currently. What is the point, if SF jumps off the bridge we should too? In case you have not noticed, Philly is not the worlds or the West Coast's financial capital. Another confusion of issues on your part is that Investors are not owners and investors tax is whatever it was.

6) Thank you for making my point, 76% of the private equity funds in PA are not in Philly. Between Conshy and Berwyn there are 14% of the states funds. Most of the 55% in the other category surround Philly I would guess. There are many in Cira center today and venture funds at the Navy yard (both tax free zones). I would like to give the building owners not in KOZ's the opportunity to have new tenants, increase rents, etc., which makes the building more valuable and allows us to collect more RE tax.

7) Once again there are no facts relevant to your argument in the link. This is not an article about taxes applied to Hedge Funds. The descriptions about the cities are applicable to employees, not the funds that employ them. Once again, thanks for making my point, the link shows that Philly is NOT one of the top 12 cities for hedge fund jobs unlike NY, Boston, Stamford, etc.

8) A wholly true fact, congratulations.

Stan, I imagine you will keep posting to things like the NYC link. I find it interesting that you don't read the things you link to well enough to understand what it actually says as compared to what you and I are individually saying. I conclude from this that it is not really worth your time or mine to continue. I've made a good case I believe. I have addressed some of your very helpful points. We are not largely changed from the status quo except for codification. It will attract funds and the companies they invest in or not. It will cost us little to nothing to find out.

Connecting the Fact-Dots

I'm just going to spend a little time on our 1-8 disputes, then say something about the overal perspective that makes this stuff so troublesome.

1. You really admit the substance of what I said, but claim it's irrelevant whether these exemptions are regulatory or legislative. Earlier you insisted it was important that they be legislative. Nevertheless in the bill, you create opportunities for more loopholes to be created by regulation. So to put it mildly, I think your argument is rather inconsistent. To me, it's important that exemptions will be established under 120007 that will require at least 9 Councilmembers and a Mayor to repeal. By the way, what is "GP". I know BPT (Business Privilege Tax), GRT (Gross Receipts Tax), NPT (Net Profits Tax), and NIT (Net Income Tax).

2. If 110554 doesn't apply to services, I can't find that exclusion in the text of the bill, nor in the Code sections that it amends. For instance, the section defining the single sales as a new standard establishes a new section 19-2604(12)(a)(i) of the Code that reads as follows:

Single Sales Factor Apportionment Liability. A business’ liability for the net income portion of the business privilege tax if the business’ taxable income was apportioned based solely on the ratio of taxable receipts of the business from within the City of Philadelphia to the total receipts of the business.

There's nothing there or elsewhere in the Code that distinguishes among the types of businesses that are eligible to apportion income on the basis of a single sales factor. But this is complex legislation that I didn't have a hand in writing. I may have missed something. I'd appreciate your pointing it out.

3. This reply is confusing. You claim I'm wrong about tax liability to investors in the funds. I don't know if you're distinguishing between partner/owners and some other class of investors. But in any event, you fail to specify what is really wrong about my comment and I stand by it. The essence of my comment is that fund owner/partners living in the City pay NPT under existing Code provisions at a rate substantially less than 6.45 which is the horrific rate that you used to justify the bill in your first post, and that low rate (3.928) is lowered even more given the federal tax deductibility of local taxes. I understand that this already reasonable rate may have been reduced to zero by Revenue, but now zero will be embodied in law. Not good, in my view.

4. This reply simply seems to be arguing your conclusion; i.e., your ordinance is a good thing. We disagree.

5. I concede some fuzzy language in my reporting on the New York revision, but bottom line, NYC is looking for ways to increase, not decrease, the amounts collected from funds and the parties associated with them. NYC, run by a fellow named Bloomberg who knows a thing or two about financial institutions, does not seem to feel that higher taxes will drive funds out of the City.

6. Conceded that these numbers amount to a Rorschach test and different people will take different things from them. But I see that we're well ahead of all our named competitors in the article and have as many funds as all three of them combined. Is that because of Revenue Dept rulings on taxes and KOZ zones? I don't know, but clearly that's what the fund owners have told you. And why shouldn't they tell you that?

7. Yes, the article is about employees but research has shown that business location decisions are often based on the same sets of factors that influence employees, which, succinctly, can be boiled down to one thing: "quality of life".

8. Thank you for conceding that no one knows if your bill will create a single job.

Here's our biggest difference, (and it's clearly not the extent to which we are personalizing our dispute given your discussion of my character, personality, and reading practices in your last few posts.) You project a Philly that's second rate, such that we must beg on our knees with fists full of dollars to get business to come and/or stay here. San Francisco and NY, on the other hand, in your view, can basically charge what they want because the world wants to be there and will pay whatever it costs. I don't fault you alone for projecting this view; it seems that virtually our entire political class does it, for whatever reason. Well if Philly isn't already a highly desirable City for business location, shouldn't we spend most of our time figuring out how to do make it so without giving away our tax base?

There are "high road" strategies to move cities forward. Demand that companies pay a living wage so that good companies will want to locate here, knowing their competition can't undercut them. Find investment capital to invest in such companies, through targeted investments from our pension fund. That fund has been taken down, not due to avaricious unions, but avaricious financial institutions that are still the place we go for financial advice, and by Fortune 500 companies which are still the entities in which it invests. Yet local, targeted investment that creates jobs in neighborhoods is derided as unsafe, speculative and rife with opportunities for corruption. Who is calling the kettle black here? And if we don't have enough investment dollars from our own pension fund for smart, targeted, local investments, let's go to some of the well-heeled nonprofit hospitals and health institutions around town. They aren't paying our real estate taxes, nor business taxes. Maybe, at least, they'll invest in our neighborhoods.

We can also create our own city-owned bank to develop investment capital. Indeed, we will soon be hosting a three day national convention on public banking. I understand the City of Reading is interested in moving in that direction, and the state least effected by the financial crisis, North Dakota, has had a public bank for almost 100 years. . . . It is doing very well by doing good. It's time, Councilman that we think way out of the box, as I know you say you like to do. So let's get off the tangent of risking our tax money for speculative gains that may or may not ever show up, and get proactive to put our own capital into our own City and make it grow. With or without Wall Street's help.

Philly is first rate! Don't put words in my mouth.

I have proposed specific things to retain and attract jobs. The move to single sales factor last year, the fund bill this year, etc. I am not clear what specific policy changes you are suggesting will cause businesses to move in. We have had the same advantages for the last thirty years and have lost 50,000 net jobs per decade (we have had the same disadvantages too, like being one of only five cities in the country to tax net income and that is why the shift to gross receipts that we tried last term --on a revenue neutral basis-- is so important). It may make sense to require minimum standards for business but I fail to see how that, without more, will increase jobs and the City's revenue? It's an entirely different discussion.

Your suggestion that the City make investment decisions about who to invest in with our funds or the pension fund is ludicrous. Politicians picking beneficiaries of public largess is partly responsible for the state of the pension system--pigs at the trough. If we create a fair system of taxation that is easy to understand and does not punish profitability then "smart" businesses will choose us (rather than us trying to choose them). We do create tax credits for job creation applied to all businesses--that is "smart" city action.

Of course, if we did decide to invest pension money we could come to your blog to explain why each company that got funding is worthy and each that did not is not worthy. That would be fun. Good times.

I don't think you really mean what you just said

Do you mean there's nothing we can do about jobs except through tax policy? And are you saying investing pension funds in the stock market is just a totally corruption-free way of making money? You're right, those things are worth a separate discussion. Coming soon. By the way, temper, temper . . .

That's the problem . . .

In fact I did not say investing in the market is free of corruption, I said nothing to lead you to say I implied it. I said choosing investments in a much narrower group of companies that propose to do business in Philadelphia will absolutely lead to corruption.

Tax Policy

There is very little we can do in the short and medium term that will not be addressed through tax policy--I will say that. Long term, when we provide services like a good education and public safety and clean streets we can have a different conversation. As a councilperson, I can effect tax policy. I have appropriated money for other purposes only to see the Mayor choose to not spend it. Your utopia requires a charter change that allows for line item appropriations that must be spent.

Whatever, I now realize these guys really need the help

and we're a caring City. I just read this report below, and realize whether or not it's good policy, we need to lend these guys a helping hand.

Hedge funds have endured a rough year. Tumultuous markets. Tighter regulations. An insider trading crackdown. But despite the lackluster environment, the top managers still took home $14.4 billion in 2011. Even when returns suffer, the largest hedge funds can collect big paychecks, thanks to the fees they charge pensions, endowments and wealthy individuals to manage money. Paul Tudor Jones II charges a 4 percent management fee and takes 23 percent of any profit. So he made $175 million in 2011, although his main fund tracked the returns of the Standard & Poor’s 500-stock index. Steven A. Cohen, whose firm, SAC Capital Advisors, keeps 50 percent of the profit, earned $585 million.

And so on. Read the rest of the sad story here and I dare you to walk away with dry eyes imagining yourself in the shoes of these sad sacks. It pains me to even think of what they'd have to do without.

While I don't agree with

While I don't agree with rich people never having to pay taxes, I do have to say that it isn't right for anyone to not have to pay taxes. There are so many people who don't pay a dime and then complain because they feel the rich don't pay enough.

There are so many things that people will never be able to understand without a good idea because of the rhetoric that goes along with all of the politics and taxes.

Suppose someone makes so little working 50 hours a week . . .

that he or she still can't both pay rent and buy food for his/her family? Should that person pay taxes too? Is that person not paying taxes the moral equivalent of a billionaire hedge fund manager not paying?

Dennis HE, poor people always pay taxes

First off, there's the regressive FICA tax, which -- unless you have a six figure salary -- you pay on every dollar you make.

The poor also pay FICA on every dollar they make. Except for students, there are no exemptions...

EXCEPT for the rich.

The rich pay nothing -- zero, no FICA at all -- on every dollar they make over $106,000.

Make $50,000 or $5,000, you pay FICA on every dollar. Make $500,000, you pay zero on nearly $400,000 of it.

Thanks to Obama, the cap rises to $110,000.

And FICA is not insignificant. People sometimes think it is because it's broken into sections, but at the regular 6.2% + 6.2% + 2.9% (Medicare) it comes to 15.3%.

For a reference, Mitt Romney reported that he paid 13.9% of his income in federal taxes.

(More FICA politics: FICA pays for Social Security. Over the years, the federal government has 1) removed funds from Social Security and not repaid them 2) failed to raise the FICA cap along with inflation, making it appear that Social Security was in financial crisis -- a ruse cynical anti-government ideologues such as Paul Ryan want everyone to believe, so they have a "reason" to change or end Social Security, the most successful US government program ever. IN REALITY, if we simply restore the FICA cap to what it was under Reagan, Ronald Reagan, the system will be solvent for decades, and if we simply remove the cap altogether, so the rich pay FICA on every dollar -- just like you me and the poor -- the system will be in the black forever.)

Second, speaking of regressive taxes, the most regressive taxes are sales taxes.

The poor pay sales taxes to state and local governments around the country, with little or no exemptions, and they pay a far higher percentage of their income than do the rich or even the middle class.

I hardly need explain: since poor people need to spend most or all of their income on everyday purchases just to live, they contribute a much higher percentage of their income to sales taxes than do rich people, who spend only a fraction of their income to live.

Between FICA and sales taxes -- along with property taxes -- poor people definitely do not get away with paying no taxes in the US.

Despite the hype, the problem is not that poor people pay no taxes.

The problem with government revenue -- and economic morality -- is that we currently are allowing the rich to get away with paying some of the lowest tax rates in history at a time when the government needs to spend more on infrastructure and r&d in order to get our low-demand national economy going.

samuel.durso@gmail.com

The whole point Sam, is to make the income tax regressive too

The .00000....1% can't stand the fact that there's a tax that some members of the working poor and the unemployed don't have to pay. They've buried from public discourse all the inconvenient realities that you point out -- and others like the fact that even struggling, barely-scraping-by tenants pay real estate taxes. Until Occupy, the .0 to infinity crowd was actually getting pretty good traction with the notion that the poor needed to "have skin in the game." In other words, getting raw and bloodied by local taxes, they needed to scrape off some flesh for the feds as well. And if we have regime change in DC in January, we will find out just how much skin the poor still have.

I saw a little something about private equity firms

and their good works in today's Times, here and here. Definitely the kind of companies, and leaders, that I want here so much I would tell them never to pay taxes to us if they would just pack up their bags and come. And another good thing is, if Mitt Romney has to go back into business after November, we should have a pretty good chance of bringing him and his business here, because if his business isn't already eligible, Bill 120007 lets the Revenue Department declare that it is.

I especially like the timing of Bill 120007 because it passed in the same year that the Mayor has decided to repeal the wage tax credit for low wage workers. What do they do for the economy?

OK, honest question time

How much UAM is controlled presently by Philadelphia-wholly-owned-and-located private equity firms entirely contained within the city?

Almost all the private investment firms in the Delaware Valley are in Delaware County, Chester County and Montgomery County and a small fraction in Bucks and the remainder in New Jersey. This is an industry that's almost entirely contained within the suburbs and there's hardly any noticeable activity within the City. Watch any CNBC commentators from "Philadelphia" based shops commenting on the markets? They're in studios with a Center City drop background, located past City Line Avenue.

I know you're itching to tax this industry, Stan... but it doesn't exist in Philadelphia. I think that's the point of the bill sitting before the Mayor: lure it into the City so that at some future point, it does become taxable. And it's not like W-2 and 1099 employees of those firms won't be paying any taxes if firms do locate into Center City high-rises to take advantage of the proximity to the Acela Express.

Many of those employees will be buying property in Philadelphia to live here, paying the Real Estate Transfer Tax. Some of them may have spouses running entrepreneurialships, which is quite taxable. They'll be eating from lunch trucks and restaurants, again taxable, buying groceries, again taxable, taking cabs, again taxable, and riding the trains, again taxable. Some employees may have children in the family, all doing taxable activities.

What's that adage? Cutting off your nose to spite your face? I remember this argument back when Blackrock looked at two properties as possible relocations and you went on for paragraphs about it; then they ultimately decided to stay in New Jersey.

Call me when we have private equity shops headquartered here with UAM over $5,000,000,000. There are precisely zero of them right now.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Syndicate content