Who Do Business Tax Cuts Benefit?

A while back, we requested a bunch of data from the City on business tax records. The idea was that before we start cutting taxes more, we should look at the data, so that we can use reality-based policy making. (See here and here.) The City said they needed thirty days to respond to their request. The solicitor told us that, in effect, as long as names of businesses were shielded, it was our right to get the information. However, thus far, the Department of Revenue has only given us a small piece of information. So, with the legal opinion of their own law department saying they are obligated under the law to give us the info, we are going to try one more time. (More on this new request in a follow-up post.)

However, we did get a small piece of info from the City so far, and at the very least, we can see just who these tax cuts benefit. The chart below divides the 77,000 payers of the BPT (in 2006) into two categories: The first (the red bars) is businesses that paid over $100,000 in business taxes. There are 446 of these. The second category is everyone else- the 76,600 payers of the BPT that paid less than 100,000 in taxes in 2006. They represent 99.5% of the number of BPT payers.

The second and third sets of columns show us two main numbers: how much each category of business would save from elimination of the gross receipts tax, and how much each category of business would save from cutting the net income tax from 6.5% to 4%.

I had to put those blue arrows in, because otherwise, it is hard to see how much the bottom 99.5% of Philly businesses save from BPT cuts- $574 a year from net income cuts (over a long period of time), and $734 a year from the elimination of the gross receipts tax. The net income tax cut, for example, would be about enough for 99.5% of Philadelphia businesses to hire one minimum wage worker for all of... two weeks. I know it is called job killing and all that by Philly Forward and the like, but... I don't see it.

The vast majority of Philly businesses don't get a whole lot from tax cuts. How about the 446 that make up the top one-half of one percent? They do just fine. As the red bars show, the two tax cuts net them $149,000 and $77,000 bucks a year, respectively. The top 0.5 percent of our businesses together take over 50% of the total tax breaks.

Again, just the net income portion of tax cuts: Biggest 446 businesses net an average of $149,000 a year. The other 76,000? About 500 bucks.

If we want to target tax breaks to small businesses, fine. But, we should be clear about a couple things: Even at the biggest projection of tax breaks, the vast majority of Philly businesses will not be 'saved' by an extra 100 dollars a month. And, they will not all of a sudden be able to hire a number of additional workers. What will happen is that the biggest 446 businesses will get themselves a nice chunk of change.

We will have more data soon, when the City gives us the information that they are legally obligated to give us. But for now, even with this most basic data, I think City Council and the Mayor should slow down on BPT cuts and figure out if there is a targeted way to help small businesses. Because this is not it.

We will follow up, with our new request within the next day. Again, if the city decides to cut taxes, that is a policy decision. But we should make it with reality-based decision making, not hidden numbers and empty slogans.

Quartiles or better

You know, this is a start, but only sorting out businesses who pay more than $100,000 in BPT just does not tell you so much as you would think. How many businesses pay less than $10,000/year? How many less than $25,000? Those are small businesses. How many registered businesses pay few if any taxes at all?

Likewise, at the top, there's a contradiction in the "average" numbers, since the $100K taxpayer also nets "on average" over $100K in benefits. If there are 50 or 100 businesses who pay nearly a million in taxes -- or maybe just a handful, they're netting the bulk of the benefit in that group as well.

Let's not obscure the main point

The detail that you're asking for would be nice, but let's not obscure the main point. The main point is that City Council is on the verge of locking in sharp business tax cuts year after year for 8 years, for no good reason. It's getting ready to use a hammer to cure a tooth ache. It's simply the wrong instrument, and it will cause massive pain while failing to resolve the problem.

There are many reasons why small business is in trouble in the City, but starving the City for money will not resolve many of them. After 8 years there will be no gross receipts tax, a tax that now produces over $100 million a year. The net income tax will be cut from 6.5% to 5.7%, a cut of 12.3% in a tax that now brings in about $300 million a year for a loss of another $37 or so million a year. What would be better for small business: putting $137 million a year into the schools, or giving them an average tax cut of $734 federally tax deductible dollars a year (along with a 12.3% cut in their federally deductible net income tax?)

Yes, there are small businesses that pay more than the average along with some that pay less. But assuming the tax burden is really breaking the backs of some businesses, can't we help those businesses without breaking the back of the City's budget at the same time? I think the brilliant minds we now have at City Hall can find a way.

Tim, we are working on it

something that shows that type of detail is definitely the goal. This was sort of a (semi-unsolicited) intermediary offering from the city.

It is rough

As Jennifer said, it is a rough breakdown, simply based on exactly what the City gave us. We want much more details, because this doesn't tell us nearly as much as we would like, and will be re-requesting data tomorrow. (As Brett Mandel will tell you- and told me- there are a number of registered people who pay very little, because they have a BPT set up, etc.)

But the basic point remains, half of total the benefit goes to one half of one percent of Philly businesses. We would like some more information, and now have the City's opinion that we are entitled to see it by law.

Changing the BPT

I think that most businesses in Philadelphia would agree that it makes more sense to *change* the BPT by eliminating the portion which is on gross receipts than to cut the portion on net profit. Think about it: if your costs are $100/yr., and you make $50 in sales, your gross income is $50, but your net income is $-50. Under the BPT as it currently stands, this businessman pays taxes on the $50 he made *even though he made no net profit.* That, to my mind, is stupid, and should be changed.

How much would removing the gross receipts portion of the BPT effect the city? There, I can't provide any answer, other than to say that taxing someone, in effect, for losing money is a pretty bad way to encourage people to move their businesses- and, along with them, jobs- into Philly.

Just my $0.02,
-Z

Do you think the City has too much money?

Probably not. So if you were on City Council, you would probably say let's eliminate the gross receipts tax and replace the $100 million loss we take from that by taxing something else, like adding an equivalent amount to the net income tax. Or else you might say let's cut the tax for small business but leave it on the 400 or so big businesses that pay 2/3 of the total. Or else you might say, let's do something about the scandalous underfunding the City gets from the state, which leaves the City picking up a hugely unfair portion of social service, prison and court costs. Or let's get the state to do more to fix the schools, another stunning area of state abdication of responsibility. But you probably wouldn't say: so what if we lose all of that money. Yet that's what we're hearing from City Hall.

Stan, this is easy

The money is already there.

Right now, the Philadelphia Parking Authority is squandering way more than $100MM a year on itself (salaries and patronage positions), when it could be giving that back to city coffers.

PPA should figure out how to be just as effective with a smaller fleet... reduced to revenue-producing tow-trucks only and the patty wagons they use to deploy PPA workers to remote locations. The top salaries at the PPA outstrip a lot of area politicians' take home pay. Why is that, Stan?

Return the Authority back to City control, or if that is not acceptable, change PPA's mandate (with Rendell/Evans/Joseph's help) so that the Parking Authority is required by law to turn over a percentage of its INCOME (not revenue, income), over to the general fund.

You could use this to send to the school system and/or a combination of BPT cuts, and also raise parking garage fees and meter rates willy nilly whenever revenues decrease.

Just wow!

That's not even a "kind of" wow! That's a complete wow!

99.5% is a rather large percentage, I'd say.

You'd think from these numbers that maybe some folks in this City have a disproportionate influence on our government. Or something like that.

Four notes

The projected numbers here are for an eliminated gross receipts and 4 percent net profits tax -- which I believe puts us something like twenty years into the future based on the current schedule of cuts.

...

The BPT pulled in 438 million in revenue in 2006. Divide that by seventy-seven thousand and you get $5,670. That's what the mean/average BPT payer pays.

Some businesses -- say the top 1 percent -- obviously pay much more than that, so the mean for the 76617 is actually much lower. But let's use it anyways.

If you pay $5670 in taxes, a $1300 tax decrease means a lot. It does not change the world, but it is a remarkable change. Likewise, I think if you pay nearly one million dollars in business taxes to the city, an extra $200,000 is terrific -- but not exactly lighting your world on fire.

...

Here's an idea for small businesses -- which I think have to be defined both by number of employees and amount of revenue. Government regulated businesses (i.e. banks) currently have the choice of paying the gross receipts or the net profits tax, whichever is less. (The idea being that to tax banks on every single transaction would have a crippling effect.) Why not allow a certain class of small businesses to choose between paying the BPT or paying the simple wage tax on profits (since the goal in part is to reduce the BPT to the wage tax anyways).

...

If we eliminate the gross receipts tax entirely, we need to come up with some alternate solution for taxing that class of regulated businesses -- either compelling them to pay the net profits tax or perhaps some other scheme. I don't know if any of these projections take that into account or not.

display of quantitative information

dan,
perhaps you can display the info as a cumulative distribution plot.

Examples of this are here -
http://en.wikipedia.org/wiki/Pareto_distribution

this will show how each of the individual business contributes to the total.

-nk

I can't, because we don't

I can't, because we don't have the data. They so far have literally only given us this specific breakdown. We hope to be able to do that. In fact, if we get the data, we will send it to anyone who wants it, so that everyone can figure out the best way to look at it.

Missing the point

The real benefit of cutting the business taxes in the City is the expansion of capital investment from new business. Why do you think there are only 446 business taxpayers with over $100,000 in tax liability? Because they are big enough to go anywhere they want. Smaller businesses have other compelling reasons why they can not move outside the city.

Perfect example, a few years ago there was a company started by the name of Amazon.com. Everyone is familiar with it. The Navy yard would be a great location for that company. It has access to every mode of transportation and logistically could make great sense. When Amazon got started it sold millions of books and goods, but the losses where huge. Take a look at what Amazon's tax liability would have been had they been in the city. Massive.
Since they had no net income in those early years they would have had to use their own precious capital to pay the tax on gross receipts. Their venture capital advisors would never let them begin their business here.

Oh btw, they now employ 17,000 people.

You really can’t grow the tax base with the BPT.

Very honest of you to admit that your favorite pol was Reagan

Because Reagan was just for cutting taxes without worrying about the consequences in reduced spending. Indeed, he was happy to have less spending as, probably, you would be. But those of us who are not happy about that prospect have to pick and choose among unpleasant alternatives. We could eliminate the gross receipts tax and give up the 100 million it brings in. Or we can try to limit the damage by cutting the tax in ways which would benefit almost every business in town but a few. By doing that it seems we would save tens of millions of dollars. But it would leave some unhappy chief execs.

Personally I believe the big businesses you're concerned about will either be here or not, regardless of the GRT. The GRT is miniscule. If a business like Amazon is losing money, it's still operating because it has investors who will take a short term loss because they expect there's going to be a very big long term gain. They will not be deterred by a tiny gross receipts tax, levied at a rate of .00145 this year -- which is what it is right now -- if Philadelphia has everything else going for it, like great schools, a solid infrastructure, safe streets, and great cultural institutions.

Now, is the gross receipts tax necessarily the best tax that Philadelphia could levy? Probably not. But it's what the Legislature, in its infinite wisdom has given us, along with the net income tax. Maybe we should reduce the GRT to 0 and raise the net income tax to make up for it. Or maybe there are other alternatives, particularly if the Legislature would help us out by giving us more taxing power. Or by raising and graduating the personal income tax and using the new money to help cities out to the extent that it should.

So for me, who does not view Reagan as the greatest pol ever, that's where the discussion ought to go. For you, I can understand that you would rather focus just on cutting taxes, and leaving the rest to the magic of the marketplace. And, of course, that's your right.

stan, why do you prejudge me?

Because I answered some silly question on the sign in page you decide you "know" me???

The thread we were in was really discussing the tax base. No one was discussing reducing revenue. But because of my answer to question, you put your Reagan hater hat on and missed the issue.

The city does way more harm in having a BPT tax whether real or perceived. IF it’s such a tiny little tax, fold the revenue in another tax and get rid of the issue all together.....hey that’s what you said

There is no way the City can survive with less revenue. It’s about how you go about collecting it.

BTW, your opinion is really been tarnished in my view. When I signed up for this board it asked for the greatest politician ever. It did not ask who was the best leader, who was the best president, who was the best mayor. Reagan didn’t really cut taxes nor spending. That’s why he is the greatest politician ever… he gets credit for something he never really did.

In my mind Politics does not equal government. Our City proves that every year

2 things

1- If the BPT rate were lower, Philly would have gotten Amazon? That whole Silicon Valley thing had to do only with taxes?

2- You say:

Why do you think there are only 446 business taxpayers with over $100,000 in tax liability?

This is a pretty meaningless concept to discuss with out context. Based on historic population ratios, can you compare this number of businesses who owe over $100 k in tax liability with businesses located in the top 20 largest cities in the country and tell me where we stack up?

Perception of Tax Impact Drives Decisions

Companies and their advisors make location decisions based largely on their beliefs and perceptions. Obviously access to a good work force, adequate space, transportation and other factors play big roles too. For that matter, where the CEO wants to work in regards to proximity to the CEO's house matters also (see Lincoln Financial moving out to Radnor and Sears moving to Hoffman Estates from Chicago). In regards to beliefs and perception, if business leaders view that a tax is unfair or not a good value for the services they receive, it can impact their location decisions. The gross receipts tax is often viewed as unfair by startup firms in that when they are in their first years of operation and trying to build a business and customer base and potentially losing money they have to pay a tax that is viewed as a tax on their real or potential losses. (Even though the tax is on gross receipts and not on net income you of course are taxed when you have a loss.) This results in many startups perceiving that they will need to pay an unfair tax in their early years (when there is probably a greater likelihood to lose money and where cash reserves and fund balances are likely to be smaller).

For the record, in its first full year in 1996, Amazon had $15.7 million in sales. Sales increased dramatically in future years for Amazon. In 2000, Amazon lost $1.4 billion on $2.76 billion in revenue. Of course most startups do not become Amazon like in terms of size or losses. However, if a significant number of small startups that might employee say 5 - 10 people per company after they have operated for 10 years never locate in Philadelphia due to concerns or a disdain for the gross receipts tax the aggregate loss of potential jobs and taxes to Philadelphia can be significant.

Some businesses may want to avoid paying taxes and go through a series of exercises up to setting up shell corporations in Bermuda to hide profits for the purpose of avoiding paying taxes. I believe that many if not most companies, especially start-up companies, just want to have a sense that they are being treated fairly in terms of taxes and are not asked to pay taxes on things like gross receipts when they have losses or limited financial resources.

Supprt the "war on terror" too

Perception and reality--never the twain shall meet?

Companies and their advisors make location decisions based largely on their beliefs and perceptions. Obviously access to a good work force, adequate space, transportation and other factors play big roles too.

Come one Elp, I expect more from you. Can you back the first sentence quoted up above with any kind of factual evidence? A well-sampled survey of Philadelphia businesses of various sizes? An analysis of data? Anything?

Even if you can back that up, are you really suggesting that munincipal revenue planning should follow the "beliefs and perceptions" of business rather than economic trends and city budget needs?

Maybe small start-ups should get a break

But that's not what's before City Council.

One's Perception is Their Reality

Ray:

Nice attempt at throwing out the "war on terror" issue in what I assume is an apparent linkage with the issue I raised is that business locational decisions are made in large part on perceptions and beliefs. In my mind one's percepion is their reality until it is changed, no matter how "wrong" or misguided that belief may be. As to the war on terror, I'll just say that it is a misguided paternalistic policy. A catch phrase, such as "war on terror", based on a failed set of policies and beliefs really has nothing to do with perception.

Back to the point at hand. If one was looking at opening up a new technology company and was looking for a location in the Philadelphia area, a prudent person would talk with a number of people including people such as colleagues, associates, suppliers, industry leaders, their accountant and lawyer. If the "word on the street" is that the taxes in Philadelphia are not fair or that there would be trouble getting a good workforce due the brain drain and the low number of college graduates in Philadelphia, the person starting the business might open it in say the Boston area or if they really want to be in the Philadelphia area due to say family reasons, in the King of Prussia area.

Here is some data and opinions from others. And yes, in that beliefs and perceptions drive location behaviors of businesses and economic trends, and I assume that the City would want to increase employment, business spending and related activities so that the increased business activities provide more jobs for residents, and a larger base from which to raise tax revenue to meet the City budget needs

From the Center City District newsletter of Winter 2007 http://www.centercityphila.org/docs/winterdigest2007.pdf "Set taxes too high, people and business migrate beyond our boundaries. Provide inadequate services and inferior education and those who can, will leave, while those who cannot will be left behind." In that same publication, Reduce business privilege tax to enhance Center City’s competitiveness for office retention & attraction had the highest ranking score of issues of Central Philadelphia Development Corporation members.

From the Philadelphia Feds Q2 2003 Business Review article titled "Should Philadelphia's Suburbs Help Their Central City?" by Robert P. Inman available at http://www.philadelphiafed.org/files/br/brq203ri.pdf "High tax rates and low quality public services, however, may drive firms and middle and upper income households from the city."

In the Center City District newsletter of Winter 2005 http://www.centercityphila.org/docs/winterdigest2005.pdf referencing Thomas Friedman, "In The World is Flat, Thomas Friedman notes that in the global economy of the 21st century, high-skilled work can be performed in Center City, Bala Cynwyd or Bangalore, India. Cities are now subject to intense competition, not only from suburbs and other regions, but from three billion people and new Web-enabled firms in emerging economies in China, India, Russia, Eastern Europe, Latin America and Central Asia.

The places that thrive, he suggests, will have minimum barriers to entry; places that make it easy to start businesses, raise capital and become entrepreneurial; places with simple, equitable and transparent regulations; and those with an educated, energetic and versatile workforce that thrives in a competitive, rather than sheltered, environment."

A perception or reality of an unfair tax structure along with other factors impacting businesses causes a higher entry barrier. A higher barrier to entry means fewer business, fewer jobs, and less tax revenue. If goals of government include more jobs for residents and more tax revenue to pay for government goods and services it should factor in how business decisions are made as business decisions impact the number of jobs and the amount of tax revenue. I'm not saying government should lower taxes to placate or give more money to businesses. I think that the current huge profits and huge salaries of the vast majority of large companies is obscene. The issue is not to have discussions of tax policy shaped largely or entirely as to how it benefits large businesses. Clearly the broader community including job opportunities and overall tax revenue opportunities need to be part of the discussion. If the overall broader community benefits from a tax policy and large companies benefit as well, I am not going to say no to that type of policy just because it happens to also benefit large companies.

What does biz perceive to be the effect of lousy City services?

I'm not sure you read your own quotes. Let me highlight some words that you quoted that you may not have read. From the Center City 2007 news:

Provide inadequate services and inferior education and those who can, will leave, while those who cannot will be left behind.

From the Philadelphia Feds Bus. Review article:

High tax rates and low quality public services, however, may drive firms and middle and upper income households from the city.

Again, it's lovely to cut taxes. It's lousy to live in a City that's crumbling without the revenue to do anything about it.

reach out for the brass ring ELP! You can do better...

1. Thomas Friedman, who you cite via the CCD, was a foreign affairs columnist for the NY Times.
2. The CCD newsletter poll of current Center City businesses that finds commonality among them when it comes to tax rates is not surprising. However, they haven't left, and my guess is most won't leave because CC is the place to be, so not sure how this addresses my original point.
3. The Fed article is the most interesting, and salient, but I'd say it probably does not come down in favor of the position you have been arguing. From its conclusion:

On its own, Philadelphia has made significant progress toward
efficient city budgeting since its 1990 fiscal crisis. Growth in city workers’ compensation has been brought in line with annual rates of inflation, and the resulting savings in conjunction with productivity improvements have allowed balanced-budget reductions in the tax rates for wages and gross receipts. The problem that remains is the city’s disproportionate share of the region’s responsibility for poverty spending, a burden it bears for historical and legal reasons.

Regional financing of regional poverty will neutralize this threat to Philadelphia’s productive efficiency, and the region as a whole will benefit. Reform can be implemented within the existing structure of state financing of county poverty spending; no new metropolitan government is necessary, nor is there any need for regionwide taxation. What will be required, however, is a commitment on the part of the city and the four suburban counties to work together.

So back, to my original question to you:

Can you back the first sentence [companies and their advisors make location decisions based largely on their beliefs and perceptions] up above with any kind of factual evidence? A well-sampled survey of Philadelphia businesses of various sizes? An analysis of data? Anything?

So far the answer is no.

Aside from the obvious, which is that I bet most business owners would tell that their bottom line (read: cash in bank)is the biggest driver in their decision-making process, (most stores don't accept "beliefs and perceptions"), I am simply astounded by how willing some members of Council, the Mayor, and the tax-paying public is to lower a tax without seeming to understand that it won't solve small business problems or with any evidence that it will help keep or attract large businesses.

If someone could prove that, I'd be the first person in line to support BPT cuts, but no one can. Which leaves us with nothing other than hope--which we all know is not a method (that's a Catholic joke).

Services and Taxes Are Not Mutually Exclusive

Obviously I read what I wrote. I mentioned services before in my postings about issues businesses care about. The issues of taxes, services, and education (i.e. schools) are not mutually exclusive. In fact three of the key elements in the creation of the Center City District and its support by the business community were:

  • A lack of services from the City (e.g. city planning).
  • A willingness to pay a special assessment for more and better services.
  • A perceived low level of services for many of the services that were being provided by the City.

I am not saying to cut taxes for the sake of cutting taxes or that taxes are bad or that there will no impact on the City's budget. Rather, I am saying that the gross receipts tax is fundamentally a bad tax that has a lot of ramifications that cost the City jobs and other tax revenue (by having fewer jobs and fewer business). If there is a determination that a cut in the tax will not be fully offset by increased revenues from other existing taxes and that there is a need to replace the revenue, than the revenue should be replaced by increasing another tax or through another means, such as getting more money from fixing the substantial waste, inefficiencies and lost revenue from public entities such as the Parking Authority or Water Department.

By having a better business environment, in terms of improving a wide range of issues including taxes and services, more businesses might move here as the entry barrier will be lowered. If we have more businesses it would logically follow that we would have more jobs and more tax revenues for many other local taxes from real estate taxes to sales tax to the parking tax.

so here's the deal

I know that taxes and services are not mutually exclusive.

However, here's the thing, every single thing about taxation in Philadelphia is messed up. Seriously. We have a flat wage tax that is unfair for lower income earners and we have a property tax system that is way out of date with housing market prices.

So why don't homeowners and wage earners get the same amount of attention? Why can't we have--as Dan suggested a month ago--reality-based solutions. Meaning, that we ask Council to justify everything it votes to spend money on by telling us how it will benefit the city.

This criteria, that you propose, is just far too vague for me:

By having a better business environment, in terms of improving a wide range of issues including taxes and services, more businesses might move here as the entry barrier will be lowered. If we have more businesses it would logically follow that we would have more jobs and more tax revenues for many other local taxes from real estate taxes to sales tax to the parking tax.

The Wharton professor above agrees with you about our business environment. So do I. Thing is that neither he nor I agrees that more tax cuts are the best next step. Now we have data that shows that both the gross receipts tax and net income taxes affect many, many, many more small businesses than large. I am all for dealing with that inequity.

However, beyond that, the largest corporations in Philadelphia simply don't need a cut in their effective tax rate right now. It won't even help them. For corporations and citizens alike, there are SO MANY other things to invest capital in that can stimulate our economy, and increase its sustainability, and those are where every dollar in the city budget should go.

Period.

Let's get specific here

What's before Council right now is Councilman Goode's amended bill to eliminate the gross receipts tax in 8 years, and lower the net income tax by 12% over 8 years. The only replacement revenue proposed is an increase in the Parking Tax, but that increase is contained in a separate bill. And the revenue from that tax is allocated by the Mayor for Fairmount Park and street improvements, not to replace lost BPT revenue. But even if it were dedicated completely to replacing lost BPT revenue, Council could pass the BPT cut without increasing the Parking Tax. It has rejected Parking Tax increases before.

The Mayor's Five Year Plan does not assume that BPT cuts will generate revenue. His proposed spending increases come from the City's fund balance of some $300 million, and from projected pension cost savings due to his proposed bond issue. If passed, Goode's BPT cuts will keep going well after the City's fund balance is gone.

There's also a bill before Council to repeal a wage tax rebate for low wage workers that's set to start in 2013, the last year covered by the Mayor's Five Year Plan. The Mayor assumes that credit will cost the City $16 million in 2013 and more in later years.

So here are the questions that Council has to answer before May 31:

--- Should it pass Goode's BPT bill?

--- Should it pass his bill even if Council doesn't have the votes to pass the Parking tax increase?

--- Should it pass his bill even if it decides to keep the low wage tax credit, knowing that the Mayor's budget assumes both cuts would cost the City revenue?

--- And finally, underlying all these questions: if City Council is willing to take take the risk of cutting business taxes without replacement revenues, and even if we may have to cut services, WHY DO WE NEED DEMOCRATS?

There's Democrats on City Council????

Democrats?

City Council is not stocked with Democrats. It's stocked with the DCC machine that calls its members Democrats, but they resemble New York City Republicans circa 1850.

Stan, you failed to touch on where the revenues can be found to offset BPT cuts. There's a huge amount of waste going on at the Parking Authority. I bet the PPA can be put to the squeeze for millions of dollars in the plus column.

You and I can't get access to PPA's books. Only Dwight Evans has glanced at them when it was suggested that something was amiss with payola [it's not payola, it's just patronage]. The PPA is extremely zealous at its collections (which is good). How about cleaning up the authority from the inside, squeeze down costs and take that revenue back to the City treasury?

Even if you can't free the PPA from Perzel-control, the Governor can still call for a shakeup at the agency and the General Assembly can act.

Jeez, we're wasting away money in the City's legal fund to fight an unwinnnable battle over gun control that has a slim chance of success. How about we redirect our efforts towards lobbying in Harrisburg?

Of course the PPA needs to be cleaned up

and of course the Dems in Harrisburg are wildly deficient in sticking up for Philadelphia interests. How can they support a budget -- any budget -- year after year that flouts the Supreme Court's mandate that the state pay for all county court systems. That decision was made over a decade ago, and flouting it has cost the City well over a billion dollars since. And that's the tip of the financial iceberg that the City keeps crashing into without so much as a peep out of our Harrisburg delegation.

I Actually Agree With Ray on Some Points

Ray:

I actually agree with you on several key points. I'd be happy to get the PA Uniformity Clause changed ASAP as it is the biggest issue impacting fair taxation in Pennsylvania. Until you get the clause changed to allow for different tax rates (say for large versus small businesses) any discussion about getting rid of flat tax rates is just discussion. I've called for the real estate tax system to change through correct reassessment (with a cap of say 10 percent on residential increases in terms of taxes owed based on the system wide reassessment) and once we get rid of the uniformity claus a higher real estate tax rate for commercial properties; also moving towards a land value tax so as to not reward surface parking lot owners or people who sit on vacant and substandard property. I've suggested that the PWT be collected as an income tax by the state so that the paradigm and collection process would shift away from it being viewed as a Philadelphia tax that businesses need to deal with collecting and sending to the Philadelphia Department of Revenue. (Note that in this scenario with the exception of a small and reasonable fee given to PA, legally all of the PWT revenue would still be Philadelphia's. I also realize there would be a risk that PA could change the law to grab some of the PWT under this scenario, but I still think a change in the collection and dynamic of how the PWT is collected and perceived might be worth the risk. Also, PA could change the law tomorrow and start to grab some of the PWT under the current collection system.)

I also agree that the gross receipts tax might not be the best tax to cut, however, it is one that if cut I believe will have a benefit to the economy and on the "business environment" as I've noted, and one that can be fairly easily cut in terms of a relatively small loss of tax revenue and in terms of current political support. I

I would argue that homeowners have effectively received "attention" through the lack of action on full reassessment; through the fact there has been no real estate tax (millage) increases for years; and through the fact that when properties are reassessed on the sporadic basis they are (they are done so as a matter of BRT policy) at a level that is below where they should be.

I agree that local government should of course explain the needs, goals, and plans for what it plans to spend money on, before it approves spending the money.

I agree that there is a need to spend more money on services and infrastructure. I believe though that significant funds and cost savings can be found within the current City and related agencies (again the Parking Authority and Water Department) or possibly through an overall restructuring of the tax system to provide substantial funds for the new spending.

ok so take it step further: agree w me that BPT cut should wait

...until we get more data. Until a real-fact based, rather than perception of reality discussion, is had in Council.

You are right:

I also agree that the gross receipts tax might not be the best tax to cut, however, it is one that if cut I believe will have a benefit to the economy and on the "business environment" as I've noted, and one that can be fairly easily cut in terms of a relatively small loss of tax revenue and in terms of current political support.

A cut to the BPT would be the most expedient way to create the illusion of improving our business environment, but there is no proof that it is even close to the top of the list in terms of effectiveness.

In that context, how can anyone who cares about fiscal responsibility and funding the city's priorities possibly think it is good to cut?

Show me, and the rest of the public, the facts that this is the best and most important thing to do, and I, and I suspect we, will be all over it.

A variation

I want to echo Ray's motif of a call, but in a different direction.

I would like everyone here to support full valuation in the city's property tax, and a modest increase in the total revenue in the property tax to reflect the sharp increase of property value in the city and the necessity of increases in services and infrastructure that directly benefit property owners.

Right now, our skewed system of evaluation disproportionately benefits the wealthiest property owners.

Right now, none of the BPT goes to the schools. An increase in property tax revenues would.

If we're serious about increasing revenue, let's get serious.

seconded

In addition to agreeing with Tim that our real priority should be getting our property taxes straight, I'd also just like to point out (holding aside issues of equity) that the bar graph everyone seems to be relying on to show the BPT cuts will have little or no effect actually proves the point of some arguments in favor of reducing the BPT.

Small business owners of the Mom & Pop variety are going to see little benefit from the BPT reductions. But some may say that the whole BPT issue is moot when it comes to such businesses as they have the least ability to choose among favorable tax environments. They need to locate where their customers are and their customers are in the City. BPT levels are simply not relevant to their decisions as to where to locate. For the economists in the house, you could say that they are BPT inelastic.

On the other hand, large corporations that operate in a regional, national or even international market are free to choose among the most favorable tax environments. BPT levels are relevant to their decisions - they are BPT elastic. So, in one sense, the fact that large employers would derive the greatest per-payee benefit from this policy actually speaks to the fact that a policy designed to make Philly more attractive to large employers would make Philadelphia more attractive to large employers.

Just to be clear, I am not saying that we should jack taxes up on small business owners who can't afford to move out of the City and stop taxing large corporations. I'm just pointing out that the graph actually provides evidence in favor of the BPT reductions.

A problem with your logic, DeWitt

Which is, you're focusing on the decision-making by large companies that are considering to locate in this region, or companies that are already here and considering leaving.

I would guess that BPT taxes is only one small factor affecting the cost/benefit analysis of such businesses. As such, it is probably only marginally relevant. And how many businesses fall into that category anyway? Any answer would be highly speculative.

However, large businesses that are already here and which aren't considering leaving (like, say, ones that just built huge skyscrapers perhaps) would be very likely to care a great deal about cutting the BPT. And then the questions become: What is their level of influence on our legislature? What is the differential impact of that influence on different constituencies of Philadelphians?

What I don't understand is why a Councilman who has a long history of championing small, minority-owned businesses would choose to support an initiative that reduces revenue (and likely negatively impacts the ability to provide services ) and that also has a relatively small benefit to small business owners and a large benefit to large business owners?

It doesn't add up. Why isn't Councilman Goode advocating a policy which would be targeted to small businesses - as Dan asked?

The cynical answer would be that the obscenely rich CEOs of those large companies have undue influence on our legislative processes.

The optimistic answer would be that Councilman Goode sees it as a way to increase unemployment in Philly. But without some statistical basis for supporting the notion that benefits to large companies would employ more of the Philadelphians who need work than policies that benefit the small businesses in our neighborhoods, we are being asked to take it on faith that the cynical answer isn't correct.

Dewitt, here is a quote from 8 weeks ago

Who said this? (emphasis added)

I think we need to distinguish between (1) the small businesses case and (2) Fortune 500 case (types like Unisys).

In the Fortune 500 case, I'd agree with Lynch that the business case for lowering taxes to attract companies like Unisys (Fortune 500) is weak. However, in the small business case, the business case for lowering taxes to make Philadelphia more hospitable for small businesses is strong. It is telling that Lynch only addresses whether taxes affect a business's decision to locate in a specific jurisdiction. He does not address the small business case, i.e., whether taxes stifle small business growth.

Any guesses?

wow Dan, your really good at

wow Dan, your really good at sticking it to me...

It's truly amazing how you are able to purposely ignore what I write (I'm giving you the benefit of the doubt here). If you notice something about my comment above, I purposefully refrained from addressing the equities of the policy. And in the language you quoted, I was not - hence the apparent differences in my conclusions.

My comment above was merely pointing out to you that despite all the self-congratulatory gushing that was going on about what you believe the above chart proves, there is actually a reading of the chart that in reality provides justification for the policy of BPT reductions.

Look, if YPP is just a mutual admiration society, great - I'm sorry to get in the way of that. But if this site is really about refining progressive arguments and message, then maybe you should possibly tolerate a little dissent to allow progressives the opportunity to sharpen their arguments and proverbial swords. Maybe you should every once in a while scrutinize your own positions with the same zeal you scrutinize others.

I'd bet that more often than not, you'd come out on top. But for some reason, you are completely unable to suffer any criticism whatsoever.

As for Councilman Goode, I think it is admirable that he is willing to stick his neck out and try new ideas. We've had nearly 50 years of attempting to address poverty through government transfer payments. In those 50 years, the condition of the constituency he claims to represent has only become worse. Folks like Ray and Stan seem to believe that despite the last 50 years of failure, what is needed is more of the same. In my opinion, being Progressive doesn't mean that you need to dogmatically stick to failed policies. Ultimately, BPT reductions may also fail to achieve Progressive goals - but we don't know that yet.

Haha. I didn't realize

Haha. I didn't realize quoting you was being mean. I am not saying you would like to burn and pillage Philadelphia by pointing out that this statement:

On the other hand, large corporations that operate in a regional, national or even international market are free to choose among the most favorable tax environments. BPT levels are relevant to their decisions - they are BPT elastic. So, in one sense, the fact that large employers would derive the greatest per-payee benefit from this policy actually speaks to the fact that a policy designed to make Philly more attractive to large employers would make Philadelphia more attractive to large employers.

...and this statement:

In the Fortune 500 case, I'd agree with Lynch that the business case for lowering taxes to attract companies like Unisys (Fortune 500) is weak. However, in the small business case, the business case for lowering taxes to make Philadelphia more hospitable for small businesses is strong. It is telling that Lynch only addresses whether taxes affect a business's decision to locate in a specific jurisdiction. He does not address the small business case, i.e., whether taxes stifle small business growth.

... seem to sort of be contradictory. Your earlier post, at least as far I as can tell, was saying we should lower the BPT, because even though it will not attract large businesses, it would help small ones.

Then, yesterday, you said we should lower the BPT to attract large businesses? In other words, I am not talking equity, and I don't think I mentioned that, right? I am talking pure economic rationales, and what seems to be two statements, pretty at odds with each other.

"you said we should lower

"you said we should lower the BPT to attract large businesses"

where exactly did I ever say anyone should actually do anything? I merely expressed a rationale for lowering the BPT that could be justified by reference to that chart.

And I thought I made it abundantly clear that it was a rationale that, if I balanced it against the equities at stake, may not be sufficient to justify implementing the policy.

oh man DeWitt

Folks like Ray and Stan seem to believe that despite the last 50 years of failure, what is needed is more of the same. In my opinion, being Progressive doesn't mean that you need to dogmatically stick to failed policies.

Boy, you got my number!

Ditto

The more those policies have failed, the more I love 'em. And btw, we haven't had experiments in tax-cutting? And all we've been doing over the last fifty years has been making transfer payments? Ronald Reagan, "ending welfare as we know it" leader Bill Clinton, George W. and the Republican Congress that was just kicked out a year ago, along with the Republican State House also just kicked out after 12 years of (no) largesse to poor Philadelphians, the last 3 or 4 Republican governors of Pennsylvania, and our very own Ed Rendell who started cutting taxes in Philly in 1992, will all be interested to know that.

those were the days

Ah Stan, remember how you and I used to get black-balled 50 years ago? Man I loved those McCarthy-ites.

And we had this cool '57 Chevy (a car from 50 years ago). Remember how I used to get arrested all the time for going to gay bars?

Ah, I love living in the past.

Stan, for what seems like

Stan, for what seems like the 1,000,000th time, you and I disagree as to the relevance of federal tax policies to municipal government policies.

For your reasons, you believe that lessons learned from the Reagan tax cuts are somehow applicable to BPT tax cuts. I think there are material differences between the federal case and the municipal case that are material and make your analogies inapposite.

Simple questions, DeWitt

Why not target policies towards small businesses that already exist in our neighborhoods, or which would very likely be started up an run by our neighbors?

Why target policies towards large businesses which will be evaluating myriad criteria in choosing a location?

Why create policies which benefit already hugely profitable companies more than the benefit small businesses struggling to survive?

Your reading of the chart assumes that a primary criterion should be attracting new large businesses. What evidence do you have that among all the criteria they might evaluate, the BPT tax is primary? What evidence do you have that there even are large businesses that are considering locating in this area - as opposed to other areas with cheaper real estate, lower prevailing wages, better weather, newer and better infrastructure, etc.?

If you have to choose one way or the other, and to some extent you to, doesn't it make more sense to craft policies on the basis of helping companies already here? If so, and you have to choose one way or the other, and to some extent you do, does it make more sense to craft policies on the basis of helping already extremely profitable large companies or smaller businesses in our communities?

Hi DeWitt

yeah, Josh, I was talking about this a little last night. I have zero expertise in this area, but it seems to me weird that, in talking basically about the whole of urban economic development, that the only issue is essentially whether we think tax cuts at the top will improve the economy here generally.

There has got to be more we could be focusing on and talking about: more interventions. I cannot believe that the best practices in economic development begin and end with tax cuts.

Dan, Josh and Jennifer, you

Dan, Josh and Jennifer, you do realize that I was playing devil's advocate?

That's what I meant by stating "putting equities aside." I thought I was being clear. I suppose a nonlawyer may misunderstand what that means, but as for the Penn Law grads in the house, you must know what that means. I thought I was being clear that I was purposely making a statement based on a conscious decision to ignore issues of fairness and what not.

I do find it pretty ironic that even when someone plays devil's advocate on this site, they get jumped on. Amazing that you guys are so intolerant of disagreement that even when someone plays devil's advocate, you attack them.

Oh

I was not commenting on the back and forth, more the whole arc of these discussions in their many iterations!

PS

I hate the part of law school where you put the equities aside!

can Penn grads read?

yes, Jennifer there is an answer. I know it's terribly passe--50 years ago of me even--to cite a study done by a Wharton prof, but if you scroll up about 10 comments you a very specific statement on stimulating economic development in the city. I will repeat here:

On its own, Philadelphia has made significant progress toward efficient city budgeting since its 1990 fiscal crisis. Growth in city workers’ compensation has been brought in line with annual rates of inflation, and the resulting savings in conjunction with productivity improvements have allowed balanced-budget reductions in the tax rates for wages and gross receipts. The problem that remains is the city’s disproportionate share of the region’s responsibility for poverty spending, a burden it bears for historical and legal reasons.

Regional financing of regional poverty will neutralize this threat to Philadelphia’s productive efficiency, and the region as a whole will benefit. Reform can be implemented within the existing structure of state financing of county poverty spending; no new metropolitan government is necessary, nor is there any need for regionwide taxation. What will be required, however, is a commitment on the part of the city and the four suburban counties to work together.

And for anyone who has trouble parsing that [I won't mention any names...], what he is basically saying is that tax rate reduction is important, but the cuts that have already been made have generated as much growth as they were gonna. Now, next step, get the burbs to help us deal with poverty.

Pretty simple really, in concept, a challenge in reality. Maybe that's why so many want to continue cutting tax rates--even though there is no proof that it will help, it seems more do-able than delving into our regional and state-wide relationship problems.

Thank you Ray

I read better in blockquotes! Especially when they directly follow my name.

Dewitt, first of all, I

Dewitt, first of all, I noticed that you had a statement that directly contradicted yourself, at least as far as I can tell. In response to me, you launched into personal attacks against Ray and Stan. That doesn't make a whole lot of sense to me.

So, again, compare your two statements: one from 8 weeks ago, stating there is no good rationale for using biz tax cuts for attracting large businesses, and your new one, that we should cut the BPT because it will bring in big businesses. Which one is it?

How is anything what I said

How is anything what I said a personal attack against Ray and Stan? Are they really so invested in the policy of "transfer payments" that they consider it affront to their person when someone criticizes the policy?

Also, do me a favor and stop characterizing anything I ever said. If you must attempt to express my position on anything, quote me. Because when you paraphrase me, you inevitably get it wrong.

For instance, I never said that "there is no good rationale for using biz tax cuts for attracting large businesses." I said that the small business case presents the best rational for business tax cuts. It is the best rationale because only the small business case lets us overcome the equities.

Maybe someday, I'll write up the DeWitt Brown's Treatise to DeWitt Brown's Views on Local Tax Policy. I'll be sure to give everyone here on YPP an advance copy because I know that you'll definitely cast the most critical eye on it.

you're right: not personal, just wrong

Dewitt, here's what ya said:

As for Councilman Goode, I think it is admirable that he is willing to stick his neck out and try new ideas. We've had nearly 50 years of attempting to address poverty through government transfer payments. In those 50 years, the condition of the constituency he claims to represent has only become worse. Folks like Ray and Stan seem to believe that despite the last 50 years of failure, what is needed is more of the same. In my opinion, being Progressive doesn't mean that you need to dogmatically stick to failed policies.

Can you describe in more detail what you mean? If you'd characterize Social Security (which was put in place 73 years ago) as a "government transfer payment," then you'd be wrong in saying that it has not decreased poverty. Same with unemployment. Same with the EITC. Less huge gains with food stamps and AFDC, and even less with TANF, but still more than any other thing else government does.

All of these programs work, but the reality is that the people who benefit from them don't have enough political clout to maintain them.

Anyway, you are just wrong.

Further, I have written EXTENSIVELY about how we need to realign the New Deal and past poverty-relief programs to deal with the dynamic nature of economies, specifically the service-oriented one of today. That means we need paid-family leave, universal access to afterschool and childcare programs, and healthcare that is de-linked from employment.

None of that, of course has really anything to do with tax reductions. Councilamn Goode is hardly sticking his neck out or trying anything new.

Tax reductions, and the zero-sum game style of economic development have been in place since the 1970's when plants and industry first started leaving the North and then the US en masse. Talk about a failed policy.

It's too boring to even ask you for the 19th time if you can find any data to back up your claims, because you never can.

Ray, you're not ready to comment on my recent work ...

you still need information, right?

Have a good weekend. A good week - next week. I'll get back.

Or not.

WWGjr

I repeat Councilman

You are not trying anything new by reducing the gross receipts or net income tax.

I agree that the gross receipts tax on small business should be abolished. However, I don't think it should be abolished on large businesses because it is worth a lot of money to us. And we can't annex the tax because of the uniformity clause.

so if i were you, i'd try something creative, like a uniform exemption on a much larger scale before committing to more rate cuts that don't actually do much to help small business, but lose us $2 m or more in revenue.

Ray - you are talking about

Ray - you are talking about federal policies. And last I checked, the BPT is neither a federal policy nor does not fund federal policies. And therefore, IMO, cannot be justified by reference to federal policies. I am fully in favor of transfer payment policies implemented at the federal level. However, I think at the local level, it is inequitable for jurisdictions with high rates of poverty to attempt to fund transfer payment policies. Moreover, I believe such policies are fundamentally self-defeating for jurisdictions with high rates of poverty.

I am sure that Dan can do a search of YPP and find where I've previously elaborated on this point and quote that language for you.

For whatever reason, you guys seem to ignore this distinction I and a whole bunch of other people whose shoulders I am standing upon are making.

i don't need to do a search

poor DeWitt. Like Stan, I don't recall ever suggesting that city government hand out cash payments. I am interested in increasing our revenue to be able to afford more police officers, create access to universal afterschool and childcare, imropoving services at city health centers, and an expansion of SEPTA service. If Councilman Goode and the Mayor think that we have $100 m to spare over the next 8 years (the amount we'd give up if the cuts go through), then I think it's only fair to stop for a second and talk about what else that money could be used for. Beyond which, you did say this:
We've had nearly 50 years of attempting to address poverty through government transfer payments. In those 50 years, the condition of the constituency he claims to represent has only become worse. Folks like Ray and Stan seem to believe that despite the last 50 years of failure, what is needed is more of the same.
Like I said above (and its totally academic since we are talking about mostly state and fed policy) but those programs have all reduced poverty. Meanwhile, you also implied that Goode's tax cuts were new and innovative. They are not. Since the 70's look it up. And, you are right, they are not just about Regan-omics: there is a body of research on state tax incentive and state tax reduction programs, as well as municipalities and the results are generally mixed. Sometimes they help (or up to a point as the Wharton prof says above) but they don't take a city or a state the distance (which is where we are at now).

Invested in transfer payments?

I'm not affronted by what you said, simply amazed by it. What have I written about transfer payments? Nothing. I've talked about a variety of things we could do with money saved from not eliminating the gross receipts tax. But I don't believe handing money out was one of them. Do you have a quote that I might have written under the influence of my multivitamin pill while completely unconscious?

Josh, to be clear, I am in

Josh, to be clear, I am in 100% agreement with you that each of what I assume to be rhetorical questions suggests policies that, if I was a policymaker, I would reach for first.

For instance, if I had to pick out the first and best "economic development" strategy I would implement, it would be fixing our schools.

As an aside, I think we just end up talking about the BPT so much because its one of the few policies out there that is simple enough that everyone can consider themselves an expert in it.

Doubling down

Yes! And let's raise property taxes to help pay for them!

Why did it just get so quiet in here?

One last note

You could also note that the 446/456 (it's still not clear to me which number is right) top businesses support the bulk of our business tax revenue, play the largest role in our economy, employ the most people (outside the nonprofit sector), etc... They stand to gain the most because they already pay the most. And if our economy is going to expand in terms of employment, wages, and dollars spent and earned, it's going to be these businesses (and others who join them) who do the heavy lifting.

On the other hand, the small businesses at the bottom end will never be likely candidates to hire additional full-time staff. They just don't do enough business or make enough money to justify it, taxes be damned, unless they move out of that bracket into the (missing) middle tier. These are one-two person or single-family businesses. Now, if you think about a $700-1200 tax benefit going to a single family, that is a significant amount, one which might encourage you to stay in business or open your own. The wages of that family just grew.

There may be other solutions. Maybe the city could allow very small businesses to pay the wage tax on their profits rather than bpt. The city has to figure out how to prevennt the WalMarts and the Sunocos from hiding their profits, and the Commerces and PNCs from paying no tax at all. But I think we need to think about these things separately. There is job creation, wage growth, and assistance to small businesses and start-ups. Different parts of the tax cuts speak to different things, and if you expect one to solve the problems of the other (whether you are for or against) you are bound to be disappointed.

You could also note that the

You could also note that the 446/456 (it's still not clear to me which number is right) top businesses support the bulk of our business tax revenue, play the largest role in our economy, employ the most people (outside the nonprofit sector), etc... They stand to gain the most because they already pay the most. And if our economy is going to expand in terms of employment, wages, and dollars spent and earned, it's going to be these businesses (and others who join them) who do the heavy lifting.

It is 456.

Personally, regardless of whether a business such as Sunoco is doing the heavy lifting or not- I don't really care. I don't care if bigger business pay more. I think progressive taxes are a-ok. And, I think that while Comcast and Sunoco might do the heavy lifting, they as a whole get more benefits from American Government than just about anyone- on a City, State and Local level. So, on the purely theoretical basis, I seriously do not care whatsoever.

Second, I think you are basically making the point: there is not a one size fits all approach here that any real evidence shows works, yet that is what we are getting with the BPT- locked in for years.

On a personal note, when the blog started way back when (in the good ol' days when Brett would buy me Chinese food once in a while), I didn't really care about the BPT. In fact, tax policy is still pretty damn boring to me. But, what has made me spend so much time on it is basically that the more I looked at it, the more I saw a huge long term tax cut, with potentially very bad ramifications, that did not seem based on anything except the Tax Reform Commission (funny no one notices the dissents there), and was always a moving target (ie, on this day, we are doing it for small businesses, on this day, big ones).

And as for the data we don't have, again, we have sent in now two requests, and have been now basically been denied again. Supposedly the City will work with us to give us some more of these type breakdowns, into smaller groups, etc., but we sent them a request about forty days ago, and so far this is what we have. So, again, I don't see the hurry here. If they aren't hurrying to give us- and a member of City Council- the data, than why in the world does this need to happen so quickly?

It's not a progressive tax

It's a flat tax. It's a flat tax before the cuts and it's a flat tax after. This is why we shouldn't be surprised that businesses who pay a lot of taxes get more in dollar terms from a rate cut.

The way I see the argument for these tax cuts is this: taxing gross receipts is problematic in principle because you get taxed twice on the same money and problematic in its consequences because it shifts more of the overall tax burden onto less profitable businesses, which could discourage small businesses and startups. Reducing the costs of individual transactions might also lead to a reduction of prices.

The net profits cut is a pure job creation, supply-side cut. You want to attract new businesses and encourage employment, a lot of which will really happen at the high end.

Wage tax cuts have a double justification, which actually works against itself -- you put more spending money in people's pockets and/or you help employers, since they don't have to pay as much to reach the same real wage.

I have said and will continue to say that it's a mistake not to consider the gross receipts and net profits cuts separately, that it's a mistake not to weigh net profits cuts against wage tax cuts, that it's a mistake to eliminate gross receipts without some kind of plan to collect taxes on banks and the big companies who could hide their profits if we switch to a profits-only tax, and that it's a mistake to cut these taxes without first getting serious about collecting property taxes.

But I will continue to say that most of the arguments here for opposing tax cuts, based on this data, are astonishingly bad.

However astonished you are about the arguments made here

for opposing tax cuts, the arguments that are being made at Council for the tax cuts are astonishingly worse. What you hear there, as also expressed by Wilson Goode, Jr. on this site, is basically that the GRT isn't fair, and that it's a fact that the GRT chases business away. And that's where the tax-cutters' argument begins and ends. You hear no concern over the costs of abolition in the absence of compensating revenue, and you hear (virtually) nothing about how lousy services, which need to be paid for with money, chase business away.

So here we are trying to get Council to listen to something that will turn their brains on, based on the little information we've been able to get from the City despite the stonewalling. There might be better arguments to be made, but in large part they will have to be based on data showing which approaches will be both fair and cost the City the least amount of desperately needed cash. Don't blame us for any "astonishingly" poor arguments, blame the City which has no interest in unleashing the data that would let us make better ones.

None of which should be construed as meaning I agree with you that the arguments that have been made here for trimming the tax cut are bad. Most of the big companies that pay seemingly huge taxes to the City pay at far lower real life rates than the published ones. They only pay taxes on goods and services sold into the City, and net profits that are apportioned as derived from in-City business. So a company like Sunoco pays a miniscule amount of tax to the City compared to its overall earnings. That tax couldn't possibly be a major factor in its locational decisions.

Yes, I know it is a flat

Yes, I know it is a flat tax. But, thanks for pointing that out for me.

However, underlying my whole point is that, rather than simply cutting a flat tax, why not try and figure out how to make it more progressive? What if you made cuts based on employer size? Or potentially based on years incorporated, so as to deal with start ups.

And, of course we don't have a lot of data- we have exactly what the City gave us, which does demonstrate that .5% of businesses get about half the benefit of the tax cut.

And so, you can make astonishingly good arguments for cutting taxes, but until you provide some actual data to show that things like this are true:

The net profits cut is a pure job creation, supply-side cut. You want to attract new businesses and encourage employment, a lot of which will really happen at the high end.

...then seriously stop.

Remember, all we are asking for at this point is for a pause in tax cutting so that we can look at the actual data. Doesn't seem so unreasonable to me.

the thread is dead, or the problem with blogs

as with most BPT arguments here, we've reached an overload of bluster (I am as much at fault as anyone). And the larger problems with blogs loom, a problem among all of us being able to listen:

I have said and will continue to say that it's a mistake not to consider the gross receipts and net profits cuts separately, that it's a mistake not to weigh net profits cuts against wage tax cuts, that it's a mistake to eliminate gross receipts without some kind of plan to collect taxes on banks and the big companies who could hide their profits if we switch to a profits-only tax, and that it's a mistake to cut these taxes without first getting serious about collecting property taxes.

But I will continue to say that most of the arguments here for opposing tax cuts, based on this data, are astonishingly bad.

Tim, I agree with you. And if you look above you will see me say repeatedly, and others, like you, that the data above is not all that helpful, and that really we should just not be seeing any cuts happen until a)we know more and b) there is a plan to actually address the problems small businesses face, find the best way to attarct and retain businesses who can provide high-wage jobs and c) make sure we don't lose any revenue.

Does anyone really disagree with those three points? And does anyone really have 100 % confidence that Councilman Goode's cuts will address then?

Maybe we all need to take a break, and then come back more willing to actually listen (er, read) what others are saying.

A side, but intimately-related point

First things first: let's stipulate that Philadelphia has a higher local tax burden than most cities. Let's stipulate that right away, and even go further: let's say, for the sake of argument, that there's no way that we can reduce the tax burden. This may or may not be the case, but let's say it just for the sake of argument.

But taxes are only a small part of the cost of living for any particular area. A larger part- a much larger part- is the cost of real estate. And, in this department, Philadelphia eats Noo Yawk's, Washington DC's, and Baahston's lunch. Put simply, it's a lot less expensive to buy any given kind of commercial, industrial, or residential property in Philadelphia than it is in almost any other major city on the east coast.

Combine an admittedly high burden with, frankly, very low real estate costs, and it's quickly evident that the cost of doing business in Philadelphia is *lower* than in comparable cities. The issue, obviously, is how Philadelphia can compete with its own suburbs, which are able to, in effect, dump all their problems on the City, leaving them free to enjoy both much lower taxes and comparable real estate costs.

I do recall, though, an article about the former owners of Medical Broadcast Company, on why they moved into Center City from Conshohocken. The owner said that, when he looked at the real estate costs, it was cheaper for him to rent space on Rittenhouse Square than to continue renting space in a soulless suburban commercial park. And, as far as taxes go, he said that, if you love the City, you should put your taxes where your mouth is.

I think that, when it comes down to it, a real analysis of the tax + real estate cost differences between Philly + its own suburbs will reveal something similar to the analysis above of Philadelphia vs. other cities. Namely, that Philly is at least highly-competitive with its own suburbs, and quite probably cheaper than many. The problem is perception, rather than reality. And, as we all know, once a perception of any sort exists, it's damned difficult to convince people of anything else. Humans are remarkably immune to logic + facts.

Philadelphia's best hope is that Mike Nutter can be a super-salesman for the City in its own suburbs. The problem is, if Ed Rendell, who is one of the most gifted politicians + salesmen we've ever seen, can't staunch the flow of jobs + people to the suburbs, is Nutter up to the task?

Questions, questions, questions,
-Z

this is the point

its about the tax base. you can move the sales and you can move the business, but you can't move the real estate.

Whatever the merits of business tax cuts, cutting them now is fo

Whatever the merits of business tax cuts, cutting them now is foolhardy:

Nationally private payrolls have declined for three consecutive months something rarely not also followed by an official declaration of a recession. Philadelphia is tightly integrated into the national economy so as demand weakens overall it will weaken in the city.

If there is a recession there is reason to worry that it will be worse than the 2001 downturn because falling housing prices in many parts of the country are constraining the capacity of homeowners to finance consumption out of their home equity; an important source of consumer demand in the last economic recovery.

A weak national economy means rising unemployment in Philadelphia. Higher unemployment is one conduit for increasing home foreclosures and declining housing prices in the city. Much of the rise of unemployment will be concentrated among low to middle income workers. These are often the same folks that qualify for high-cost subprime loans. In 2006 alone 36% (14,111) of the home mortgages originated in the city were subprime.

The federal index of housing prices does not permit the identification of trends in housing prices in the city separate from the rest of the metropolitan area so it is hard to know to what extent the slowing of housing price appreciation is a phenomenon of the suburbs separate from the city. Construction activity seems to still be strong in the city but most of the projects on going were planned and financed before the summer.

Falling incomes and declining sales mean less tax revenue for the city. Cutting taxes in the face is these trends will exacerbate any budget shortfall that may emerge raising the possibility of deeper than anticipated budget cuts or worse still forcing tax increases to close the unanticipated budget gap.

--Mark Price

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