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Business Privilege Tax
The Chamber of Commerce is A Collection of People Right? Then Why Isn't the Chamber Crying for Our Kids?Submitted by Stan Shapiro on Sun, 05/01/2011 - 12:00pm.
So the Chamber of Commerce-elected Governor and Legislature are bound and determined to kill all-day kindergarden in Philadelphia. Of course, the Chamber won't say it that way. But that's the effect of its actions in demonizing public spending, public employees, and, especially, public schools that have the temerity to . . . of all things . . .employ teachers. Its massive spending in the last cycle was all about electing Republicans everywhere whose overriding mission would be the destruction of the public sphere, except in those cases where the public sector could be given away . . . to members of the Chamber of Commerce.
So the question for liberals/progressives (pick your label or Glenn Beck will pick it for you) isn’t: “should we pay attention to business taxes in Philly.” It should be “can we afford not to pay attention to business taxes in Philly?”
We need to face this stark truth: business tax rates in Philly are now a life or death issue. The state is about to take a big knife to city subsidies, and the federal government will be doing the same. There are just no other ways to raise replacement funds that are even slightly progressive (as that term is used in tax lingo) –- other than raising business taxes. As I noted in my Friday post, the wage and sales taxes are both capped under state law, and the real estate tax is applied in an utterly arbitrary and capricious manner. Furthermore, the real estate tax just went up 10% last year and a further increase would face massive, justifiable resistance.
So that leaves us with the Business Privilege Tax. We need to get to know it better.
At the Philly for Change meet up on Wednesday I promised to post the power point on YPP regarding the business privilege tax changes proposed by Maria Q. Sanchez and myself. There were 15 co-sponsors total.
Key features are:
Large multinationals pay more as they can't legally avoid the gross receipts tax like they can the net income tax
50,000 of the 84,000 tax payers will be taken off our tax roles as a result of our exempting the first 100,000 of revenue
Philadelphia based firms benefit
See attached for detail.
Tomorrow morning, at 9 AM, something really important will happen outside City Council Chambers on the fourth floor of City Hall. That’s when the Coalition for Essential City Services (CES) will hold a press conference and rally to unveil a sweeping reform of the Business Privilege Tax (BPT), in particular, a complete revamping of the gross receipts (GRT) portion of the Tax.
The GRT has been successfully demonized in Philadelphia over the past 20 years, and has been directed toward extinction. It has already been cut from a high of 3.9 mills in 1988 to 1.4 mills this year, a cut of nearly 2/3. Starting in 1996 it was cut every single year through 2008. It is scheduled to decline again in 2013 and go away completely in 2022.
The rationale for killing the GRT has been twofold:
- It falls particularly heavily on small businesses because it taxes the first dollar of receipts whether or not a company is profitable; and
- It drives companies out of Philadelphia in order to evade the tax.
The first argument may not be totally without merit. So the CES proposal would exclude all businesses with receipts under $500,000 from the tax. We have discovered that these businesses, 85% of all the businesses paying the tax, account together for only about $8 million of the money the GRT raises. If we structure the GRT correctly, we can do without this money and any burden it puts on small business.
The second argument is largely false. The GRT is paid on all receipts from sales made into the City. Businesses outside the City pay close to 40% of the GRT because they pay the tax on all their sales into the City wherever they are. That’s right, whether you’re located in the City or in Nebraska, if you sell services or goods into Philadelphia, you pay the GRT on your Philadelphia receipts. Obviously those businesses that are outside the City cannot be driven out because THEY’RE ALREADY NOT HERE. And businesses in the City would have to give up all or much of their City business to evade the tax by moving.
So here’s the final reason why businesses will not move due to an increase in the GRT. The tax is little more than a nuisance to large businesses. I said earlier that at its height, the tax was levied at a rate of 3.9 mills. A mill is .001, that is one tenth of one percent. So a rate of 3.9 mills would result in a tax of $3,900 on receipts of $1,000,000. The current rate of 1.415 mills results in a tax bill of $1,415 on that cool million of receipts. And all of that is deductible from federal business taxes.
The CES proposal would take the tax back to where it was in 1996, at 3 mills, almost 25% under its 1988 maximum rate. That rollback from the current rate would cost a million dollar business about $1,600 extra in federally deductible dollars. For that nuisance increase, the City would net $83 million. If the City excluded all small businesses with receipts of less than $500,000 from the tax, it would still bring in $75 million. And that’s the CES proposal.
Of course, in evaluating any proposal, one must consider the alternatives. Should we raise $75 million from a trash transfer fee? A soda tax? A general property tax increase? Should we cut the City budget by $75 million? Now that we’ve finished patting ourselves on the back about how we saved the libraries for a year, should we let them go?
Personally I don’t like any of these alternatives to one that will take 70,000 small businesses out of the GRT and, with little pain to anyone, bring in $75 million. If you agree, please join CES at its rally tomorrow at City Hall. For more info on the rally and the CES proposal, please go to the new CES website and/or to the Neighborhood Networks website. And if you'd like to check out the Facebook page about the rally, and let us know you're coming, please go here.
There's this Chart that Councilwoman Sanchez obtained from the Department of Revenue last year about who pays the Business Privilege Tax.
In an Inquirer editorial yesterday scolding City Council for taking a second look at tax cuts, the Inky editorial board showed how embarrassingly out of touch they are with everyday Philadelphians.
First, in a nutshell, the Inquirer wrote an editorial that demanded that- fiscal realities be damned- the City better keep cutting business taxes. The editorial was kind of high-comedy.
First, here is the background though: reading between the lines, the City budget is in very bad shape, much worse than projected in Nutter's first budget proposal. The pension bond issue isn't happening, transfer tax revenues aren't coming in, and the City is faced with a basic reality: in a shrinking economy, its pretty hard to cut taxes and not cut services. So, that is the context of this editorial (and the closed door budget sessions for Nutter).
The funny thing is that the editorial doesn't particularly make logical sense. It simply wants to have it both ways. For example, there are passages like this:
It's time for the heavy lifting that's missing in the Nutter administration's first stab at the budget. With good reason, the $4 billion budget was described as crowd-pleasing. It proposed smart new investments that should be retained in some form - for police and fire protection, parks, the community college, and more.
Cool, smart new investments, great! (Which means increased spending...) But, of course, it also says things like this:
But now that the economy is faltering, there is some talk at City Hall of halting the tax cuts. That's the worst message Mayor Nutter and City Council could send to workers, businesses and residents.
Ending the meager wage- and business-tax cuts already on the books - as well as failing to push ahead with the business cuts proposed by the mayor - would signal that the city is headed in the wrong direction.
Instead, Nutter and Council need to take a hard look at the spending side of the ledger.
The paper even acknowledges that Nutter is already cutting spending 3 to 5 percent across City budgets, says we need to spend more in certain areas, then simply demands Nutter figure it out with increased 'efficiencies.' What efficiencies are they talking about? The efficiencies of taking back the money we were going to spend on Fairmount Park? Laying off some social workers? The editorial board doesn't say.
Since we are not in la-la land, and each city department is already cutting 3 to 5 percent from their spending, the blunt reality is that these savings can come from one thing: service cuts. (The Ed. Board is also clearly getting ready to go after the Unions in negotiations, so get ready for that when it happens. But that isn't now, so, the cuts couldn't even in theory come from attacking city workers.)
So, after I read the editorial, I sat here wondering if there is any way I could see how the Inquirer's priorities measure up against actual people in the City of Philadelphia. So, using these new fangled internets, and a search engine thingamabob, I used the google, and typed in "Philadelphia Priorities."
Well I'll Be A Monkeys Uncle! The very first thing that came up on the google is an actual poll by the Economy League of Philadelphia (funded by those communists at the Chamber of Commerce)- that asks Philadelphians about their priorities. And, it even specifically talks about what Philadelphians think about the debate over taxes verses services.
Shiver my timbers, look at what the heading says:
Taxes and Spending: Most Unwilling to Reduce Services to Cut Taxes
Most Philadelphians would favor maintaining the current level of taxes and services in the city, but more than one third would prefer “more city services, even if that meant taxes would have to be raised.” Only 10 percent would prefer “lower taxes, even if that meant city services would have to be cut.”
Surely that must be an error, so I looked a little deeper at the numbers:
If you had to choose, which of the following would you favor:
- More city services, even if that meant taxes would have to be raised: 38%
- Lower taxes, even if that meant city services would have to be cut: 10%
- Maintaining the current level of taxes and services: 45%
- Unsure/No Answer: 7%
Great Caesar's Ghost! In other words, almost 4 times as many Philadelphians would rather see taxes raised for more services, than cut for less. And, by a margin of 83% to 10%, Philadelphians would prefer at minimum to keep current taxes while not cutting services.
And since business tax cuts are all the rage, it would have been even crazier if the people were asked specifically about business taxes... Heavens To Betsy!, they were asked that too:
If Philadelphia taxes were to be cut, almost equal numbers would like to see the wage tax and the real estate tax cut; few would cut the taxes on businesses. If taxes had to be raised, however, a majority would prefer the taxes on businesses be raised. This is true of Democrats, Republicans, and Independents alike.
So, the Inquirer Editorial board is bizarrely out of touch with the overwhelming majority of Philadelphians? And, for that, they are attacking City Council for apparently having some common sense?
If there were a Pulitzer Prize awarded for callous stupidity, the Inquirer came up with a runaway winner in its Sunday editorial on City tax cuts.
As far as the idiotorial (sic?) is concerned, the Business Privilege tax cuts proposed by the Mayor in his budget simply must be enacted. Nevertheless, and horror of horrors, it seems that “there is some talk at City Hall of halting the tax cuts.” Imagine! People talk of such things! At City Hall!
Yes, the Inkies admit, “Nutter and Council need to plug holes in the budget that opened in recent weeks.” Yes, the Nutter budget proposed “smart new investments that should be retained in some form – for police and fire protection, parks, the community college, and more.”
The administration comes out swinging for the BPT cuts, Maria Quinones Sanchez is at bat for everyone elseSubmitted by jennifer on Wed, 02/27/2008 - 12:37pm.
As sad as I am that Irv lost last May, I am proportionately that happy that Maria is in City Council advocating for her district and all the people in this city who keep being left behind as this city's rising tide lifts only some boats.
City Council signaled yesterday that Mayor Nutter would have a difficult time deep-sixing already approved wage-tax cuts for the working poor to help pay for his proposed business-tax cuts.
At least five Council members said in a budget hearing yesterday that they flat-out opposed or were deeply skeptical of calls to eliminate the so-called David Cohen tax credit, which was championed by the former city councilman, who died two years ago.
"With an acknowledged rate of 25 percent of our citizens in poverty, I'm not satisfied that we're presenting a budget where we are more aggressive on our business-tax cuts," said Councilwoman Maria Quiñones Sanchez.
So far, the budget is good in many ways, and generally restrained. But that doesn't mean that criticism should be muted if it is due. Stan has been prescient on this:
Cohen's low-income tax credit isn't slated to go into effect until 2013, and its impact on the city's current five-year plan - the subject of yesterday's hearing - is minimal. But after the tax credit has been phased in, it will cost the city about $80.8 million in 2016, and the annual cost will continue to go up.
"It starts to take off and become a very sizable cost," said Steve Agostini, the Nutter administration's budget director. "You know, if folks want to . . . debate that, that's entirely legitimate, but we just want them to understand there's a price tag associated with it."
The administration's view is that its broader plan for wage-tax relief will benefit lower-income residents, in addition to other taxpayers. The city's wage tax was at 4.96 percent when the Cohen tax credit was adopted. Scheduled reductions to the tax rate and statewide casino revenue are expected to lower that rate to 3.11 percent by 2013.
Council members asked whether it would be possible to slow the city's scheduled wage-tax reduction rate in order to fund the tax credit for the working poor. Nutter's representatives acknowledged that was possible.
And I think priorities are a valid subject for debate and criticism.