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Small Businesses, and their Savior: Cutting Business Taxes
Submitted by Dan U-A on Mon, 06/22/2009 - 10:51am.
Remember this sheet?
It shows the amount of Philadelphia business taxes paid by business size. We have talked about it a lot. Just as a reminder, it shows that for taxpaying businesses, the average amount paid in the gross receipts tax by businesses taking in less than 100k for 2006 is a whopping $54. The average amount for businesses taking in between 100k and 500k is $435. That doesn’t seem like a ton of money, right? Yet from every news story, editorial, and blast from the Chamber of Commerce, Philly Forward and others came the idea that this tax was the invention of Satan himself. Why so evil? You have to pay it whether or not you earned a profit or not. (Remember this point, please.)
As Stan has pointed out, the devlish GRT actually does some good stuff. While we always hear the tiny, Lucifer-like GRT forces businesses to move outside of the city, it turns out the incorrigible tax already hits businesses outside of the city for any business they do inside of it. So, if Exxon-Mobil, or Coca-Cola does business in the city (which they do), then they actually pay the tax. So, unless you think that eliminating the troll-ish GRT will make Coca-Cola run to set up shop in Philly, then getting rid of it might be sort of dumb. In effect, we are disarming and giving up money for businesses outside of the city. So in response, the Coalition for Essential Services made a proposal that would increase the GRT, then exempt the first 500k for all businesses, effectively making taxes more progressive in the city.
Now, let’s contrast that proposal with what is actually happening in our city, where taxes are actually becoming more regressive. We spent years lowering business taxes, with the idea that this would be sooooo great for small businesses. And yet, what did we learn from the city?
Philadelphia's free trash-collection service for small businesses will come to an abrupt end July 1, when merchants will be forced to pay $500 a year for the privilege or else hire private garbage-haulers.
Letters notifying business owners of the fee began arriving this week, taking many by surprise.
"It came like a slap to the face. Businesses are scratching and clawing to stay open, and you're putting another $500 on top of that?" said Rita deVecchis, owner of a South Street framing shop.
Although the fee was mentioned in Mayor Nutter's March budget address and passed by City Council as part of last month's budget accord, the $500 fee was largely overshadowed by the budget debate over property and sales taxes.
The fee will be levied on about 15,000 small businesses, and could raise more than $7 million a year for the city, said Deputy Streets Commissioner Carlton Williams.
Ooops. That is right. IF you are a small business, you may a few bucks less in taxes... but you will instead pay for your services, in the form of a $500 flat fee for trash pick up. And, remember that point above, about what makes the GRT so evil- that you pay whether you make a profit or not? Oh, yeah, you pay this whether you make a profit, too. What a sweetheart deal! Comcast, Cigna and others get a huge tax break every year and taxes are lowered. Small businesses get a tiny tax break, and then immediately give that tax break back in a trash fee. And as a byproduct, when Comcast and friends (and Coca-Cola and Exxon) no longer pay, the city’s treasury is further shrunken, preventing the city from providing other services.
Small businesses, like the majority of people in the city, have been sold a false bill of goods with respect to tax cuts. If anything can show what this has really been all about- breaks to big corporations- it is this.
Does anyone who is more closely involved
know how they are rationalizing this? That's a huge imposition on a lot of small businesses.
Their justification
is they want the money. They know that if they did it to residents (as proposed earlier) it would just lead to short haul dumping and they claim it would be "impractical" to scale the fee on the ammount of trash put out, though thousands of municipalities across the country somehow manage to do it, both for businesses and residences, basically by having you "subscribe" to a particular size container.
The problem is do they really think businesses won't claim to have a contract and just do shorthaul dumping as well? What are the enforcement mechanisms? I can imagine quite few who will do just that. I can also imagine as mentioned earlier that a whole lot of low-trash-volume businesses will find a way to contract out for less than the $500 a year.
Its also to be noted a small incentive to leave storefronts empty - or to convert more of them to residential because they hit any business with apartments above but not any apartment with building with less than 6 units.
Think of Philadelphia commercial streets. How many are 3 story buildings with stores on the ground floor and two or three apartments above? So every single one of those businesses is being asked to pay a flat $500 for the trash that is put out in large part by the apartments, whether they own or rent the storefront. At least as I understand it.
I'm seriously thinking of investigating the economics for a second hand compactor truck. I think it could be very profitable to undersell the fee by cherry picking low-trash producing businesses. $30 a month for once monthly pickups is $360 a year and less than the $500 flat fee. Remember weekly recycling pickup (paper) would still be free as the current law stands.
Actually, its type of thing one of the city's coops could probably do quite succesfully if they got a mind to.
It also should be noted this tax - er fee - hits almost exclusively small storefront businesses because if you are big enough to have a dumpster (like a grocery store or a large commercial building or strip mall outlet store), you are essentially already privately contracting this stuff. This policy is really pointed directly against our walkable mixed business and residential commercial corridors.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Don't know about the either/or but I do know
that charging small businesses $500 for hauling their trash is insane, wrong and bad policy.
Bad on us for letting it slide during the budget debate.
Sean, I hope you do get into the waste management businesses (although it could interfere with your blogging).
And if not Sean, someone else. Low trash businesses could ban together and buy a truck. In a better year, Sean, you might have persuaded your CDC to invest in one.
RE: the GRT tweak, I agree to an extent.
If it proved legal, and if it really had no residual effect of either persuading larger businesses to leave Philly, or dissuading larger businesses from moving here, I'd agree that it's better than the bad $500 fee.
Two factors though, I think, need to be considered:
1) Dan's right: the GRT is perceived as evil by many. And in real life outcomes -- such as when potentially mobile businesses consider relocation -- perceptions matter.
I heard this loud and clear from small business owners during the budget debate.
Dan's also right that, relative to other taxes and fees small business owners pay, the GRT is small indeed.
You can make a good argument that small business owners and everyone else shouldn't be so concerned with the GRT.
But in my experience, many are.
People hate that the GRT can be imposed on businesses that are not running a profit, and to a lesser extent, they hate that we are one of very few cities who tax businesses this way (only Memphis and LA do so among the 20 largest U.S. cities).
And like it or not, the relative popularity or unpopularity of specific taxes can have political consequences (sometimes, in some communities) and can affect businesses' decision-making too.
The sales tax hike is an example. I personally opposed it because sales taxes are regressive.
But I'm aware that the city needs revenue and that raising the sales tax was more politically palatable than was the proposed real estate tax hike. I'd argue that it shouldn't be, but it was.
Raising taxes, in general, is politically difficult. The unpopularity of the GRT might make it generally unadvisable to raise it.
And if negative perceptions of the GRT specifically -- and how those perceptions affect business in the city -- is one, albeit hard to gauge, reason to be chary about raising the GRT, a more palpable one is
2) The fact that business taxes in Philadelphia currently are so high that they likely deter business in the city.
Google "business taxes cities" and the first hit is an abstract from Kiplinger titled "How U.S. Cities Stack Up on Business Taxes" with the explanatory note
So it's aimed at businesses considering relocating.
What's the first line?
Boldface and break from the original.
Such reports, whatever the source, cannot help the city either gain or retain businesses.
The Pew reports of 1999 and 2007 by Basil Whiting that I've cited before state as much regarding businesses taxes.
I'm not particularly happy about it, but I think we have to seriously ask whether Philly has gone to the well so many times already for business taxes that we'd be making our own situation worse by going to it again.
Even progressive economists and economics writers note that good tax policy is situational, and that certain kinds of tax hikes aren't advisable for some governments at certain times.
I'm not sure that 2009 is the right time for Philly to raise business taxes, even if we try to aim the hike at larger businesses.
This might be a chicken and
This might be a chicken and egg thing, but:
How much money was spent convincing everyone that the GRT tax was terrible? How much free media was given that talked about how destructive it was?
And when the anti-tax campaign is at its fever pitch, are small businesses told that at the same time, they will pay for stuff like this?
How much was spent
probably a fraction of what is being spent currently on health care advocacy. Small businesses tend to thinkt big businesses or at the very leas the people employed in jobs they bring are a potential customer base. They are not neceassarily as "anti"-big biz as some here seem to think.
I think, strange as this may sound, the reason the Chamber of Commerce takes various positions is a reflection of what its various members actually think. Similarly, sometimes people I like get elected to public office and sometimes some of them are shmucks. I think there is sometimes a tendency to not recognize that popular opinions some of us disagree with are still in fact popular opinions.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
I asked around a little
and it looks like two low-trash volume businesses can already subscribe to a 1.5 cubic yard dumpster pickup twice a week for around $60 a month, without reinventing the wheel. If 3 share that goes down to $20 a month. The guy I talked to knew all about the bill, specifically mentioned the buddy-system option. It seems like some low-trash-businesses might be signing up for shares in the near future, which sort of calls into question the soundness of the plan froma budget perspective.
Why not go the whole nine yards and invest in standardized containers that work with automated trash lifts, which is really what smarter communities do with this? That way trash collectors have less injuries, run smaller crews and businesses pay according to the size of the container they put out. As stated previously, lots of communities do this same thing for residential trash as well.
RE: the GRT exemption
If you can get Council to pass it and you sincerely think the two-tiered tax plan will pass muster in the courts when Comcast and Coca-Cola hire the best lawyers money can buy to interpret the Uniformity Clause in your favor, sure why not. I just don't feel like those two big "ifs" have been realistically addressed. A lot of us innately like single-payer too, but why do I feel like that has more Congressional support (despite the universal appraisal it will never pass) than the GRT exception rule enjoys on Council?
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
I have no clue whether it
I have no clue whether it stands. But other cities in the state do similar stuff, right? So, I don't see much downside in trying.
The cases that get sited are different enough
that its at least a valid question, I'd like to hear it answered in greater detail and I'm not as skeptical as the Mayor and City Council.
To answer Marc Stier's question, would Comcast sue to make sure small businesses paid in their view "at the same rate" as they do? Yes. Why would anyone assume otherwise?
How many sports fans curse having to deal with the awful company to watch the local sports teams they own and do it anyway. Thats one thing about power, it doesn't really have a conscience.
The other thing sounds interesting but the proof is in the pudding. I suspect I'm an easier sell than most and I'm skeptical. Local officials are keenly aware of the cost of local(as opposed ot state and national) residstributive taxes on job growth, keenly aware of their competition just across county lines.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Would comcast file a suit that would increase taxes
on every small business in the city?
Don't you think they would get some negative publicity?
Don't you think some of us would do everything they could to generate that negative publicity?
Anyway, Stan has a backup plan that ties the exemption (it's not really a two tiered tax, but an exemption on the first 500,000 in recepits for everyone) into an economic development strategy. Putting that rationale into the legislation would make it easier to defend in the courts.
I agree local media is generally one-sided on the GRT
and that rhetoric attacking it frequently veers between risible and hysterical.
On a gut level, that may make some on the left want to defend it.
However that doesn't mean it makes sense to raise it either.
Comcast isn't the only entity that has to worry about negative publicity.
With Philly's taxes already recognized as national highs, any additional business tax rise is likely to mean another round of bad and detrimental press.
And then there's the potential price of having to defend a GRT rise in court.
All in all, raising the tax on tickets to entertainment and sporting events (for example) probably wouldn't cost the City as much to defend nor give it as much bad press.
The CES proposal would be a tax cut for 85% of small businesses
We have been so taken over by the Chamber's framing of the business tax issue that we can't seem to grasp that there's another way of packaging it. The CES proposal would ELIMINATE the GRT for 85% of all businesses, that is every one of them with receipts of less than $500,000 a year. And it would lower taxable receipts for ALL businesses by $500,000. So even if the GRT rate were increased, many businesses with receipts greater than $500,000 would also get a tax cut, depending on how much the rate increase was. (So, for instance, if the rate doubled, a business would still get a tax cut if its receipts were less than $1 million.) Finally, even though some large businesses would pay more, many of them are not located in Philadelphia or anywhere near it.
So here's the message we should be putting out: "City progresssives propose major tax cut for small Philadelphia businesses."
There should be limits on the extent to which we accept toxic labeling that's fraudulent. That only encourages the bastards, don't you think? The CES proposal would be good for small business, and good for the City because it would provide desperately needed funds to preserve libraries, pools, rec centers, and youth employment programs. If we unified behind that kind of messaging (which also happens to be truthful) we just might get through the filter. If we don't get behind progressive messaging because we assume it will never get through, we engage in the saddest form of self-fulfilling prophecy.
The rub
So putting aside for the moment, the political factors, the potentially dire messaging factors ("City with highest business taxes in U.S. raises them again" might say the Times, WaPo, WSJ, all U.S. business journals & every local media outlet in PA NJ & Del) and the potential cost and effort to defend such a tax hike in court, then there's this:
But not all of them.
So any large businesses actually located here whose lease might be up and who might be considering leaving would be subject to the tax hike. And yes, the hype.
And any large businesses considering moving here would be subject to the same.
So the potential for a destructive effect still exists and needs to be weighed against other options.
I agree with bringing balance to the political dialog regarding the GRT, and I especially laud your creativity and effort in creating a plan, Stan.
But in the end, because your plan raises business taxes in the highest business tax city in the country, unanimous support from any quarter -- even the left -- is going to be difficult.
In the end, a lot of us have to consider the political, messaging, and legal factors as well when we're weighing your plan against other options.
We've been through this so many times . . .
that I'm going to make one more comment and then move on.
And my comment is this: if our only strategy for dealing with the comments of the mainstream press is to accept defeat, then let's just hang 'em up. The mainstream press endlessly promotes the notion that tax increases mean death for any level of government that proposes them. So governments all around the country are slashing services rather than raising revenues. Pennsylvania is one of those governments. Rendell has finally put forward a revenue plan, but it's so timid that it still forces drastic service cuts, and still contains business tax cuts. The cuts will crush people who need services that are going to be eliminated or drastically cut back. I can't accept the notion that if the Wall Street Murdoch says that tax increases are always horrible -- no matter how they're structured and even if they accompany broad tax relief -- then we have to just zip our lips and take our lumps.
As to "other options." Right now, and mostly forever, other options have meant putting the burden of paying for government on working people and the middle class. If you want to talk about bad outcomes, that's quadruply bad. First, it's just unfair. Second, it guarantees that a majority of the public will be easy targets for tax-cut demagoguery because they'll rightfully believe they're overtaxed and always will be. Third, inability to raise revenue fairly means we have to resort to horrible, parasitic alternatives like the ones that may soon arise on the waterfront and in center city. And finally, we never really raise enough money, and so cities go to hell.
Weighing these options, then, tells me that we need to fight for what's right. We need to do so smartly, with good packaging and messaging, and with truth. And then, you never know, we might actually start winning.
With all due respect
RE:
Dealing with comments and making the best economic choices and policy are two different things.
Also, and I am slow to say this, but it's worth noting.
For all the talk about facing "defeat," and however badly you or others consider the media's portrayal of Philly's tax debate -- and I grant there are egregious examples one can cite -- still, in all fairness I have to note:
Compared to everywhere else in the U.S., where it counts, in real political practice, the high tax side is winning the tax debate in Philadelphia.
And thus that side has to both take some credit and bear some responsibility for Philly's economy.
And that gives some of us pause.
And the desire to seek all options.
A possible alternative
might be to cherry pick the most palatable part of the CES plan -- making the GRT kick in only after $500,000 -- and making up the lost revenue some way other than simply raising the tax on income from $500,001 up.
You never know. If the economy looks different at budget time next year, there might be possibilities we haven't yet considered.
Picking your fights well
is the best kind of political wisdom.
I'm glad, for example, that President Obama is willing to spend political capital on health care.
I think a future battle that might not cost the Philly progressive movement a lot, and that would be worth fighting at the time of the next budget, is the repeal of the $500 small business trash collection tax.
On the other hand, I'm far less convinced that raising the GRT is either smart politics or beneficial economics.
the trash fee is already snuck in the budget and passed
We all missed it. It was part of the budget City Council is patting itself on the back about.
Considering the direness of the city's budget situation, I'm still weighing the options to evade by buddying up on a dumpster or just grin and bear it. I just think that if they are so hell bent on trash fees, why not look at the best systems - with graduated container sizes priced per usage and what the hell make the whole system safer and yes less labor intensive by introducing automation on the collection side like a lot of cities do.
See this guy's back is probably a lot less sore the next day compared to most Philly workers. I bet he has less sick days from injuries, too.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Yeah, I meant for the next budget
But hey let's convene a trash summit to determine the best and most cost effective strategy for the city.
I do wonder whether the contracts to buy and maintain those uniform containers isn't overly burdensome for a city with as much poverty as we have.
Not to veer off onto practicalities but we waste money on trash
but what do you mean by this, Sam?
Both as consumers of the trash collection and operators, by far automated systems are cheaper to operate. It takes less workers to load the truck and an automated truck can often cover more "turf" in less time. There are less injuries and also for better or worse less benefits to pay for to collect the same tonnage of trash.
The biggest cost in any activity as physical as collecting trash is always going to be labor and Philadelphia in fact pays more to collect trash in the way it does currently - in part to deliberately "make jobs" if we were to speak frankly.
Taking a random google sample article about comparitive costs, Jackonsvile, North Carolina is automating:
See that- on labor costs alone a truck which costs $210k saves $40k a month, plus additional savings in terms of health coverage costs. Or put another way, the truck pays for itself in just over 4 months. The standardized cans are financed by the consumers over time, and are either figured into the cost, like cable boxes or "sold" to the consumer over time like "free" cell phones, depending on the city. They are also just big plasitc cans with wheels and place where the swing arm on the truck grabs them. I mean they actually probably are cheaper to manufacture than either cable converter boxes or cell phones.
But that sort of underlines whats wrong with the approach the Nutter administration is pushing. Currently we pay for collecting trash, not based on how much you use the service, but strictly on how much you pay in taxes to the city, which is sometimes collected progressively but often not. Its a tax-benefit model and one which purposely is run in part in a way to somewhat inflate the number of Street Department employees, for better or worse. Typically its justified as its an "extra level" of service that was always paid for by taxes or that Philly residents are too ingrained in their ways and too innately lazy, stupid and "trashy" to adopt a different model.
Anyhoo, so Nutter keeps trying to introduce "service fees" for trash collection when he is obviously unwilling to do the political work to set up an actual effective fee-service based model, if thats the way we want to go. For a fee-service model 1.) you want to collect it as efficiently as possible 2.) you want to charge people for what they actually use. There are actually benefits to a fee-service model, for example it encourages people to get serious about recycling because they can move down from an premium "Plan A" collection plan to cheaper "Plan B" or "Plan C" plan by recylcing more. In cities where trash is treated this way, recycling is typically free (to save on land-fill costs) but also standardized to cheapen collection costs - even if you do pay a fee for trash collection.
There may rightly be some folks here that think its unfair to the poor to charge a usage fee for something like trash but typically there are also often systems sort of like LIHEAP to allow for people who demonstrate financial need to get subsidized basic service. Any real roll-out of a fee-service based system should take similar concerns into consideration.
Which brings this back to whats wrong here. Nutter and Council are only pretending to charge a "service-fee" system, but in reality its run by criteria that have have nothing to do ether with collecting the trash as cheaply as possibly or charging for it in anything other than an innately regressive way.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Strictly practical qualm re: uniform containers
not really worthy of blog chatter, but what the hell?
Some solid sanitation plans call for everyone in a municipality to purchase a uniform container -- sometimes at a charge of like $100-$200.
I'm no expert, but I'd guess that such a plan would be difficult to implement in Philly.
Trash cans get stolen a lot. My $8-$13 Home Depot cans have been stolen at least five times in the last eight years, and that's in Bella Vista.
If Philly adopted big expensive uniform containers, how often would they get stolen?
Big expensive uniform containers may fit smaller suburban communities better than cities like ours.
I reiterate
my qualms regarding containers aside, I support creating the best possible sanitation policies, and I certainly would not rule out pay-for-use, as long as the charges wouldn't overly burden the city's poor.
The Greener the better, I say.
I lerve California's Zero Waste initiative that Antonio Villaraigosa has embraced, and that saw the nation's second largest city divert 62% (yes, 62%!) of its refuse to recycling last year.
I'm jealous of any city other than ours laying claim to the title of Greenest City in the U.S., and I miss already Mark Alan Hughes who communicated so clearly a path for Philly to earn that title.
Containers get stolen by your neighbors
to use as trash cans. Not to point out the obvious but the incentive to steal cans goes down signifcantly when you get charged for each trash can you put out. If you put out extra on other than specified "big trash days" you get a fee. Its priced like cell phone minutes - enough to encourage you to get the plan you won't exceed regularly. The standardized cans also tend to have your address clearly marked so as to make sure you are using the container you are subscribed for. They also tend to have the name of the city printed on the side of the can in 3 ft. high letters.
Thats also a big disincentive to your cans disappearing currently - spraypainting your address in 3 ft high letters on the side of the can, BTW. Its what I do.
Again it sounds like the place you are mentioning are in fact using the $100 as fee to offset administration costs, not just charging for the container itself. I can't be responsible for defacto anti-progressive tax choices by suburban townships. If labor savings pays for the truck in 4 months, subsidizing the physical cans themselves is what 2 or 3 months and then you are still coming out ahead on operating costs. As previously pointed out, homeowners should be allowed to apply for LIHEAP like discounts based on income and for renters - ultimately landlords are responsible for correctly putting out the trash - exactly as they are currently.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
I always spray paint my address on my can
so I'm skeptical that the address solution really solves the problem, especially in higher crime neighborhoods than mine.
What I'm most curious about is whether any large high crime city has ever successfully adopted uniform you-lose-them/you-pay-for-them containers.
Why would you steal a can
that has your neighbor's number printed on that the guy on the truck will note as both not your can and also that he will charge you extra to pick up? I feel like you are not thinking this through Sam. There is no incentive to steal something that costs you extra money to actually use.
I'm not sure what you define as "high crime" cities. In highschool in what was then a somewhat rough neighborhood in San Francisco we had repeated stabbings and one shooting actualy inside my high school and I was jumped several times but nobody stole each other's automated trash cans. I would definitely describe parts of East and South Central L.A. as "high crime" and they have automated trash.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
This is why I'm curious about real life instances of cities
using uniform containers.
It seems to me that
1) if the container initially costs a lot to procure, people will steal them no matter what
2) container identification on stolen cans is a problem that can be gotten around, as a new coat of spray paint can cover an old one
3) (another potential problem) if you're poor and charged by the pound for garbage in the one can with your address on it, the last place you're going to put your garbage is in that can.
Alternatives include a) the street b) a park c) your neighbor's can
I admit that alternatives also include your recycling can -- which also can be stolen and can still be a hassle to replace -- but what I'd really like to know is how it has worked out in real life in other cities.
Something is working in LA, but I think it may not be uniform containers, at least not in all neighborhoods.
Not by the pound and you have to sign up
I believe the containers you get from the city and are basically mandatory. A guy in San Jose made a splash suing to try get out of subscribing to trash collection because he was such an avid recycler - and lost as I recall.
If you put out extra cans, you have to pay extra. You do have to make "clean out your garage" size, non-commercial trips to the dump basically free to discourage short-haul dumping or people putting with too much stuff for their can in other people's cans. Also periodic special allowed "big trash" days, like we do here, currently. Maybe a few of those people not working on the trucks can be reassigned do a better job of enforcement against short haul dumpers.
Googling, LA has standard automated containers and is actually replacing the first generation of containers, for free - one neighborhood at a time, because the old ones are getting worn out.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Gotcha: if the uniform containers are free and easy to get
the problem of stealing them is reduced, although costs might go up a little.
I'd been suggesting above that some people simply would never make the initial purchase.
Information on the impressive LA Sanitation Department site states that collection methods vary in different neighborhoods, and I thought I'd read an LA Times article recently that said some neighborhoods may now be using bags.
However, that could have been outside the city.
A spread out city might pose fewer chances of folks using their neighbors' containers; but still, 2.1 million containers suggests it's working there.
Dan is right though, this is a tax
one aimed specifically at small, mom-and-pop businesses ony barely masquerading as something else. It specifically punishes small-businesses and leaves the "big guys" who already use private garbage services untouched. So while I suspect folks in this thread are making a couple of logical leaps to get to a policy they just want anyway, this plan is nothing but a de-facto business tax hike and any city official who claims otherwise is in so many words simply lying.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Appearance doesn't always trump reality
Some folks are arguing that even if we eliminate taxes for 85% of businesses, including pretty much all the businessess that create jobs in the city, the mere perception that we are raising taxes for other businesses will harm the city.
And the have to argue on the basis of "perception" because the reality is that raising the GRT is not going to have any PRACTICAL effect on jobs.
Comcast pays its GRT based on the revenues it earns in Philadelphia. If it moves its entire base of operations to Chester county, its GRT will not change unless it decides to abandon Philadelphia cable subscribers.
Which it obvious will not do.
This appearance argument is simply bogus. There is not a shred of logic or evidence to support it.
Businesses sometimes act like lemmings. But I simply do not believe that they can't tell the difference between a tax that affects their location decisions and one that does not.
And even the argument about perception is dubious. A clever administration would sell the CES plan in a way that shows how smart it is in changing the mix of taxes, even in a recession, in ways that encourage economic development by helping small businesses.
A less than clever administration would allow three days of stories about how it is raising taxes on the small businsesses.
I think we all agree
the $500k exemption would benefit small businesses. It would in fact do a significant amount to make the GRT (as long as we we continue to have it) a non-issue to mom-and-pops and start-ups - which is significant. Its certainly more progressive than the flat trash tax on small business.
It also true that to a certain extent very large corporations can manipulate their books to make their local offices appear less profitable vis-a-vis the NPT in a way that mom-and-pops located entirely in the city of Philadelphia can't. This was the justification behind the GRT and really the GRT is only forward-looking in any way in as much as it can "make up" for corporations ability to play with their books.
If a revenue neutral adjustment to the GRT were on the table with a decent chance of passing and I were a City Councilperson and if legal council had consulted and studied in depth and then suggested it had a very strong chance of surviving the courts - if all of those things were true and pretty much only if all of those things were true - I personally might vote for it.
But that isn't whats really being discussed here is it? Stan's alteration was not first and foremost a plan to make the GRT less onerous for small business but devised more as a plan to make it poltically tolerable for the city by itself to get seriously into the business of taxing large corporations in way we don't appear to take seriously trying to get it passed at a state or national level. Its usually cited as a way to raise more revenue. But evil big corporations bring high paying, highly skilled jobs to the city we sorely need in as much as they locate offices in the city. Comcast is probably less of a good example here than say whether a company like Glaxo continues to keep jobs here or move all operations to North Carolina - and those are jobs we need to worry seriously about holding onto. Even if we can legally make the GRT "fairer" there are going to continue to be valid interests in making Philadelphia as competitive for those types of jobs as any county in the metro region, any of the 20 largest cities. There is a certain problem the city faces with "beggars can't be choosers".
And there remains the huge, huge question about will it stand up in the courts, even if it were revenue neutral (only punishing the "big guys" as much extra as it would take to stop punishing the "little guys"). It still would not make Philadelphia a heaven on earth, a model of efficiency in government, eliminate political corruption or make our schools the best in the state.
Overall I'm still not convinced this idea has any more actual political legs than outright overturning the uniformity clause and making the state PIT progressive - which is also a form of tilting at windmills and less iffy for Philadelphia's case for economic competitiveness.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
I don't think there is a single person
even among Nutter diehards, Marc, who actually thinks the various schemes to only pretend to turn trash into a "fee-based" system are in anyway "clever". It has not a single mark of good policy and is only in the most blatant way a cynical attempt to repackage new taxes with only conern to "are people stupid enough to buy this tax as something else", no actual concern over fairness or best long-term policy.
They are only begining to send out notices on the trash flat tax now and most people haven't gotten one yet. Low-trash businesses are just beginning to weigh their options in terms of "buddying up" to subscribe to private collection and evade the tax, at least out my way. By August when everybody gets the letters, it will hit a fever pitch and Council will get an earful when they come back from summer recess.
I'm anticipating a lot more than three days of criticism for this stupid trash plan is on its way. Particularly, if city workers are on strike and not even actually collecting trash in August when most of the small businesses being hit with a brand new unfair flat tax on trash recieve their notices.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Swiss cheese logic
Whoa, there're more holes than dairy product in your rationale, Marc.
When I suggested you make your posts more concise, I didn't mean replace your typically lengthy obfuscation with blatant mistruths.
That's what you're doing here:
Raising taxes has no PRACTICAL effect on jobs?
Raising a particularly hated and written-about tax will have no PRACTICAL effect on jobs?
You can't prove that. Simple reason. It isn't true.
I'll go further. You know better than that, and still you're saying anyway.
Others can label such statements.
And here:
Technically, that doesn't make sense.
What you seem to mean is you CAN'T BELIEVE that raising taxes -- I believe the CES plan calls for doubling the albeit modest GRT -- ever even AFFECTS a business' location decisions.
In the Gospel according to Marc, taxes DON'T EVEN AFFECT businesses location decisions?
You missed this. It's the first hit when you google "business taxes cities":
The example you give is Comcast. You suggest it is too big to move.
Over the last 60 years, I wonder how many times Philadelphians have erroneously concluded that a particular business was either too big to move or close?
You imply that all the businesses affected by the tax hike portion of Stan's plan are similarly too big to move.
ALL the businesses that gross $500,000 are too big to move or close?
The businesses that gross $500,000 are LESS LIKELY to move?
What you believe Marc -- if this is really what you believe -- is nothing less than a conspiracy theory.
You believe that the U.S. media, in particular the local Philadelphia media (which, according to you, has no effect on jobs and business decisions) has worked together with all U.S. businesses to create a decades long conspiracy to make cities and poor Pew Trust report-reading slobs like me believe that high taxes can dissuade businesses from moving to, or staying in, a city.
When the Pew Trust report says:
You hear CONSPIRACY! "Not a shred of evidence!"
You know: The fact that Philly has the highest business taxes in the United States has NEVER EVEN AFFECTED a business' location decision, let alone been responsible for it.
Uh huh.
For all these decades, the notion that our having the highest taxes in the country is a major part of the problem that causes our job losses -- that's all been a big conspiracy?
Folks, when the good guys -- and Marc always means well, he really is one of the good guys -- but when the good guys year after year, decade after decade, push this kind of stuff, this kind of willful ignorance -- you understand how problems go ignored for decades and how bad cycles become entrenched.
Marc, in the past I've suggested you ignore the LaRouchians in front of Reading Terminal.
If this is really what you believe, you might consider setting up a table next to them.
Look, Stan's plan cuts taxes on some businesses, small businesses, and raises them on others.
I like part of his plan, and I don't like so much the other part.
Stan explains it well and defends it honorably.
In my opinion, he doesn't need your pushing it this way.
I'm not even going to read this
On what economic theory does a tax that a business pays regardless of its location affect its location?
There is none.
That's the point. It's simple. And its obvious.
I may be wrong about the empirical matter. I don't think anyone has ever done an econometric study relating taxes businesses don't pay to where they locate. But I can see this being an academic growth area. Think of all the studies we can do about the effects of, say, food we don't eat on the likelihood of them causing cancer.
And, by the way, the evidence that busnesses move because of the taxes they actually do pay is not overwhelming either. There are serious academic studies on this subject.
I'm afraid asking whether a business cares about taxes is not serious and even those studies are not equivocal. Businesses often say that good schools and safety are more importnat than tax rates.
Using google scholar and look up Tim Bartik. He's done a lot of the serious econometric research in this area. If you follow his footnotes, you'll pretty much cover the field.
Sad
You fall back so quickly on moot arguments and tired misrepresentation.
You may still find the odd academic or two who questions whether taxes EVER affect businesses' decisions to relocate, and who either buys your conspiracy theory that says the notion of taxes affecting business decisions regarding location is a hoax (which at least you didn't deny), or people who basically figure
a) since very few business decisions can ever be attributed to one factor and
b) since other factors than taxes contribute to cities such as Philadelphia losing jobs and
c) since some people overstate the role that taxes play in job loss
d) we'll overstate the other side and say we can't prove they play any role at all
If you had to create a road map for how to obfuscate on taxes in cities, that would make a good one.
If you had to find an example of a longterm victim of such obfuscation, you're standing in it, if you're in town.
One thing about such academics: it's rare that they've ever successfully advised a city like ours make their economies better.
I know of no local planners or consultants who have gotten positive results preaching your particular conspiracy theory of choice.
All the planners I've spoken to agree that having the highest business taxes in the country has been an is still a burden on Philly's economy, hard as it may be for you to believe.
I won't get into the valid question of GRT collection with you. There doesn't seem to be a point.
As long as well-meaning guys like you are able to cloud this issue, Philly can continue to avoid dealing with it.
I have a feeling you are not the first such well-meaning person to avoid even considering whether your conspiracy theory is valid.
Do you even remember
that I supported and continue to support reducing the net profits tax in a revenue neutral way and substituting a PIT for it?
That's because I think that, even if the evidence is sketchy, taxes business pay only if they locate in the city may well have an effect on their location decisions. (Keep in mind, though, as I explained a long time ago, lots of businesses only serve local markets and don't have such a choice. Except on the edges of the city dry cleaners and supermarkets can't just leave.
But a tax businesses pay regardless of where they locate is simply not going to have a serious effect on that location decision.
Unless taxation has some effect on sunspot activity and that, in turn..... another issue on which there is little econometic evidence.
BTW,
(1) Did it ever occur to you to actually read the academic work you dismiss? Economists actually can and do measure much that you think they ignore.
(2) If you do dismiss academic studies, then what in the world do you base your claims on? What superior insight to you have into the workings of the economy that gives you such certainty about the usefulness of cutting business taxes?
"What your friend said isn't true."
Conversation with my Dad (expurgated):
Me:
So Pop, this friend I'm arguing with on YPP -- Mom will explain what it is -- called the Gross Receipts Tax
and repeatedly claimed it would never affect a business' decision regarding location.
Dad:
I'm not sure he means, and I'd have to look up the exact law in Philadelphia, but I'm pretty sure what you're friend said isn't true.
Gross Receipts Taxes are pretty simple. They're on all transactions in a certain place. They're completely, what-do-you-call-it, site-specific.
Me:
So if you move your business from Philadelphia, so that your business transactions no longer actually take place in the city, you no longer pay it?
Dad:
Right.
Me:
So if any retail business moved to the suburbs, or a graphic designs firm, or an architectural firm, or a consulting business moved from Center City to the burbs, they'd all stop paying the Gross Receipts Tax?
Dad:
Yes, because their transactions wouldn't be in the city anymore.
Me:
So in some situations that could be an incentive to move a business from the city, right?
Dad:
I think it would be.
Me:
And my cousin Liz, the podiatrist in Springfield, she doesn't pay the Gross Receipts Tax, even if her patients are from Philadelphia, does she?
Dad:
No. It's site specific. Do you understand? If your friend means that when businesses outside the city make transactions in the city, they still pay it, sure. But that doesn't mean businesses wouldn't just want to take their transactions outside the city and avoid the tax.
I don't know why anyone would say (something like that).
Me:
Oh, I do.
Sam, please pay attention
Yes, a Philly business could pick up and move across City Line Avenue to avoid paying $141 for every $100,000 it receives in sales -- the current GR tax -- while also losing those Philadelphia customers who don't want to follow them. Other business owners however, would think that's a crazy thing to do because if they lose even one of their Philly-based customers it might well cost them much more than $141. But here's the main reason it would be crazy for more than 85% of GRT taxpayers to move if the CES proposal passed: THEY WOULD PAY NOTHING WHETHER THEY WERE HERE OR IN BANGLADESH.
To repeat: the CES proposal would tell a ruminating business that it would pay NOTHING if it brings in less than $500,000 from Philadelphia-based transactions. AND 85% OF ALL GRT TAXPAYERS BRING IN LESS THAN $500,000. I don't know how fabulously successful your cousin's practice is, but she would probably be interested to know that she could move an office into the City, retain all of her suburban clients and pay no Philly GRT if she brought in less than $500,000 from her Philly-based office. And that even if she brought in more than $500,000 from those Philly-based client-contacts, the first $500,000 would not be taxed. So if she brought in a total of LESS THAN 1 MILLION DOLLARS and the tax rate doubled, she would still pay less than at the current rate. Liz might even want to move into the City completely to pick up Philly customers. Maybe she would, maybe she wouldn't; maybe for the vast majority of businesses all this moving over a few hundred dollars of federally deductible local taxes would not really make much sense.
Amid all this speculation this fact would remain: those businesses that are already outside the City and selling into it will continue to pay the GRT at whatever rate it is set. They can't run away. THEY'RE ALREADY NOT HERE.
So I'll get back to my previous point, which you haven't responded to, but that's alright. Tax choices are not made in a vacuum. We have other rotten choices if we reject progressive reform of the GRT. And City Council and the Mayor have made those choices. They're closing pools, cutting hours at libraries, cutting youth employment programs. And the City has chosen to do that even if the Mayor gets everything he wants from Harrisburg. So, Sam, you don't want to take the risk that a few businesses may want to move out of the City because they MAY pay a few extra bucks on taxes? Great; instead you're willing to accept the risk of what will happen to the lives of the young people who are denied the simple, basic, humane services that a progressive reformation of the GRT will buy. That's your choice, Sam; it's not mine.
I was preparing a response when you posted this
Here's what I had
You get my point. I start with this. Why continually go back to the business tax well when ours are already the highest in the United States?
It's just this, Sam
We need the cash. It's not the best way to raise money; but it's the best of all the rotten options we have. What should happen is some kind of revenue sharing from either the State or federal governments based on the fact that poor people who happen to reside in Philly are also residents -- and mostly citizens -- of PA and the United States. But our dauntless leaders don't seem to care about equity as much as we do. They're more than happy to have City taxpayers bear the disproportionate load that we do. If someone organized a movement to change that reality, I would sign on in big letters. Until then, we have to make the best horrible choices we can make; I think the CES proposal is one of them.
I know we need cash, Stan
If having the highest taxes in the land plays a major role in Philly's cycle of misery, then -- with all due respect -- you're probably wrong that raising business taxes is the best way for this government at this time to deal with a budget shortfall.
Fine, give me the better way, Sam
First, especially since you have previously pointed out the ramifications of bad messaging, I'd correct the labeling on this. As far as I'm concerned, this idea is "tax reform." And it's a reform that's a tax cut for 85% or more of the businesses affected by it. That's how I'd talk about it, and it's true.
But, I'm open. If this is not the best of our lousy choices for raising revenue, what is?
I'd start with the plan that passed minus the $500 trash fee
leaving $7 million to make up for in further cuts (start with row offices currently targeted by Committee of Seventy, add some subtracted police overtime) and if there's still some revenue to make up for (unlikely), raise by a hair more parking and the tax on tickets to entertainment events.
Or go back to real estate taxes.
If someone could show the awful sales tax increase were more harmful than your raising (overall) the already highest business taxes in the U.S....maybe, or if you could better target your tax increase to include only those businesses that can't relocate and take jobs, I'd be more likely to consider it.
If there were more of a history of Philly's high tax folks at least acknowledging the problems with raising business taxes, to be honest, you'd have a bit more credibility with me.
addendum
I'd make a next round of cuts first, trim the mayor's staff further, look at practical ways of collecting more of the $400 million the City is owed and -- to clarify -- I'd definitely go back to Council with another real estate tax rise before I'd consider your possibly-illegal plan, one that asks Philly to roll the dice once again (how many times in 60 years?) on higher-than-the-highest-in-the-US business taxes, and hope that among those 10,000 affected businesses there isn't a Home Depot that just escaped that company's last round of closures but that might not make it with the added burden or an always on the bubble large CC restaurant or hotel that's already getting clobbered in the recession. Most of the City's biggest stores and employers are included in that 10,000. Just because some high tax people will mock them on their way out doesn't mean we wouldn't miss them and their wage taxes, and if we lose those, the misery cycle spins on.
You know your tossing around the notion of "high tax people"
sounds a lot like R's labeling all of us "tax and spend liberals". It's argument by label, and not any more constructive when used by one progressive (or liberal, pick your term) against another than when used by R's against D's. I'm not a "high tax" person. I'm a social justice person. I want opportunities to be spread as wide as possible, and the cost of providing those opportunities to be apportioned as fairly as possible. And the difference between some of us is that one camp seems much more willing than the other to postpone those equities based on unproven theories that down the road our efforts would have perverse affects.
It's just as theoretically possible that inequitable tax increases like real estate increases without a circuit breaker, and/or an increase in the sales tax will chase people and businesses out as our proposed reform of the BPT which would actually cut taxes for most of the businesses affected. There's just no way of knowing; it's all speculation. So why would we increase pain on homeowners, tenants and small business owners without any greater assurance that those steps will keep businesses here, or keep them from failing? You're looking for an ironclad guarantee that no business would move out due to an increase in the GRT. But neither of us can assure any ultimate result of a tax change. At the end of the day, we should go with what provides the fairest direct result. That would be cutting taxes for small business, raising taxes on larger companies that can afford them and that are using Philly solely as a market, and funding essential services.
I'll close with another comment on your "high tax" oversimplification. I've been posting here for months on the need to get other governments to step up and get us off the hook so we don't have to raise any taxes. No one, including you, Sam, has paid that idea the slightest bit of attention. Pie in the sky? Of course it is along with every other progressive idea out there that people don't get behind to work for. But it is a just plan, and a workable plan, and one that I fervently believe in. So in reality, I'm a zero taxer. Maybe with your first line reliance on real estate taxes -- after we exhaust ourselves looking for sufficient nonservice related cuts -- you're really the "high tax person." Except that we should drop that kind of labeling; it doesn't help any of us, or our cause.
Last (I hope) clarification -- you're both
Stan, you definitely are a social justice person, and if I failed to acknowledge that or implied otherwise, I apologize. I know your passion for social justice informs your position on taxes.
That said, most observers, either in academia or real life, deem Philly's having the highest business taxes in the U.S. a burden on its economy, specifically regarding its ability to attract and maintain jobs and businesses. After decades of uncompetitively high taxes and coinciding job and business losses -- culminating in our present situation having the highest taxes in the land -- those who continue to deem this idea "unproven theory" and who thus consider business taxes to be the first and preferred option in a budget crisis, I believe, have to deal with some folks considering them high tax people too.
If doubling the GRT on large businesses were to push a big downtown hotel that's already suffering from the recession, or a big box retailer like Home Depot, to closing, you'd inadvertently lose not only their GRT but their other taxes too. Most important are the jobs the City could lose and the misery that might inadvertently be caused.
Some of us think this scenario has happened a lot during the last few decades and helps explain those decades.
That's why some of us who also are social justice people do not want to raise business taxes when ours are already the highest.
I supported circuit breakers in the City's real estate taxes as they related to rises due to assessments, so I'd support them if rises were due to a hike too. It's a lousy choice, but I'd prefer it over your hike because our real estate taxes are far more competitive than are our business taxes, and I think there's less chance this hike would cause an aftereffect of losing future revenue and causing future misery or cuts.
Our sales tax also is more competitive, compared to the other cities in the 10 largest, but that's the only thing I can say in favor of the proposed hike of that regressive tax. I'm generally opposed to it.
It's only our extreme position regarding business taxes that makes me not to want to double, during a recession, the GRT on those 10,000 businesses that would be affected by your hike. I know some wouldn't be motivated to close or move, but the bigger the business that closes or moves, the more jobs would be affected by one closing or one moving.
I support asking for more from the state and the federal government. I use any platform I can to call for raising the income taxes on the highest payers to the more historically normal rate of 50%.
I'll take your idea of making the GRT start at $500K and agree to disagree about the rest.
We read history differently, so we disagree on what risks are the worst.
Umh, see above
It's not high or low it's smart taxation that I want.
and you are finally getting to an important point I've been making for years: taxes affect the location of different kinds of businesses in very different ways.
Here is a very rough guide:
restaurants: not at all. Very few people (I'm an exception) travel far to go to restaurants and agglomration economies are important in this area
food store and supermarkets: almost not at all except at the margins of the city
clothing stores: a little especially at the margins of the city; much less so for specialty shops than department stores because agglomeration economies are very important for specialty store (eg jewlers row).
educaton and medical centers: only a little due to agglomeration economies in research
business services: depends upon the centrality of personal touch and agglomeration economies: accounting, some; law, almost none; internet, a great deal
manufacturing for a broad market: a very great deal although more so for mass than specialized manufacturing, where agglomeration effects are important. At any rate, we've lost this unless find some new niches such as green businesses.
Smart taxation takes into account these differences.
If anyone is still paying attention
to the actual words you use, Marc (this group may not include you and probably has earned some kind of endurance medal, The Golden Shovel, you might call it), in posts above you cast doubt on the notion that taxes affect location but now reveal that what you've really wanted to talk about the whole time is uhm the way taxes affect business location.
And all this after repeated, sarcastic, outright denials that the GRT could ever possibly affect location decisions (and you made me call my dad!)...?
And your professed apathetic contentment with Philly's retail situation...?
Credibility, Marc. Remember, we're all rooting for you on health care.
Some other reminders: restaurants don't move during recessions -- they close! Still a problem! Same with hotels and other businesses associated with the downtown tourist industry. Clothing shops? Wesley Emmons and the Custom Shop, dude: that was supposed to be a gimme reference I thought you'd get! And the gone but not forgotten Nan Duskin, where my Great Uncle Louis was head tailor for decades.
Finally, and this is a big one: we currently don't get a choice between high, low, or smart business taxes in Philadelphia, Marc, and I really wish folks would stop pretending we do.
We have the highest taxes in the U.S.
You want a choice of anything other than (not high but) the highest?
Start cutting. And stop proposing further hikes.
You really have no serious interest in these issues, Sam
Here, like in our debate about the LVT, you've shown everyone that your a fine rhetorician but you don't get economics in the slightest.
I keep trying to show just how complicated the business tax issues are. There are business taxes that probably do harm parts of the Philadelphia economy and business taxes that have a much lesser effect.
And that's why we need to be smart about taxation and tax in the least harmful way while raising the revenues we need, not just for social justice but for making the city attractive to businesses.
There is absolutely no reason we can't try to do this now. Even with the uniformity clause, there are lots of ways to target tax cuts, through exemptions or subsidies. If the uniformity clause were so stringent a KOZ or a tax credit for hiring ex-offenders would not constitutional.
Your framing of the issue as entirely one of high or low business taxation business is just nonsense. It's simply a failure to actually try to think about these issues in a serius way.
You are showing that you have no interest in tax issues that goes deeper than newspaper headlines.
Go back to campaign flackery, Sam. Your good at that. Policy analysis, not so much.
Gee, Marc maybe you should listen to my positions
after all, I've written policy papers for candidates who have come a lot closer to winning than you have.;)
And how's this for policy analysis:
Next time you argue taxes, you should tell the truth.
That way, you won't get called out so much, and it'll keep you from going ballistic in an unseemly manner at the end of threads.
It's not good enough
Since I've been talking about local politics, I've always acknowledged that business taxes can be problematic. I campaigned in favor of the elimination of the GRT until I came to understand how it works better. You are the one who foists views not my own on me and then says I'm not telling the truth because I hold them.
The issue here is the GRT. And for the last time, there are lots of cases where the GRT simply does not have any effect on location decisions. I'd like to see you just once acknowledge this or explain why I am wrong. I think it doesn't have locational effects when
(1) A business leaving the city would still pay the teax because it is still selling in the city--which would happen if Comcast left.
(2) A business leavimg the city would lose so much more business then they tax they pay--which would happen if a restaurant left.
(3) A business leaving the city would become much less efficient because of agglomeration effects--eg law firms that must interact with other law firms; university researchers and their suppliers.
I've made this argument three times. See if you can respond this time.
You have pointed out, rightly, that there are cases where a business can leave the city and take customers with them. I should have mentioned that myself--as I have in earlier debates about the GRT. But if I ignored it here in one particularly strenuous post it is because you have been utterly unwilling to recognize the many circumstances in which the GRT simply will not effect business locations at all.
And if you look at what kinds of businesses are still in the city and which have left, you will see that my analysis of the differential effects of business taxation are pretty much confirmed by our experience. Just because they don't fit your theory about the effects of business taxation city, you can't just ignore all the new restaurant and retail etablishments that came here when taxes were high. (Of course it is especially problematic for your theory that many of these businesses strongly support the Center City District, which raises their taxes.)
And if my view of the impact of the GRT is wrong, why don't you explain why Comcast just built a huge building in the city? Are the Roberts dumb? Don't they know that we have the highest business taxes in the country and that they could save so much money moving across City Line Avenue? Or, perhaps do they recognize that even if they move, they would still have to pay the GRT on their in-city revenues?
Does that mean we should just raise the GRT. No, of course not. For one thing we should exempt small business as Stan and I have argued, because they do generate new jobs. I've also come to recognize that we probably should not eliminate the insurance and banking exemptions from the BPT because these two sectors, at least with regard to business insurance and banking, are among the most mobile.
I would further argue that we should find a way to provide subsidies to compensate for the GRT in other mobile fields--manufacturing, for example. This is the sector that the GRT has hurt the most, although there are many other, probably more important, reasons that we have lost manufacturing. At any rate, if we want to rebuild this sector, then it would be useful for the city to help offset taxes. And there are plenty of ways to do so with, say, the various kinds of subsidies that PIDC and other city agencies already provide.
And that is all to say that smart tax policy in a city like our own targets business tax reductions rather than simply cutting business taxes for everyone. That's what Stan and I have been arguing for all along. It's the position I've taken in tax debates ever since I started writing on the subject.
End this silly debate, the both of you
I'm tired of arguing with two Marc Stiers.
One who posts on this thread says evidence showing taxes affecting business is "sketchy" and notes
And the other one says of the location issue:
I'm not sure which reads my posts, but someone isn't doing a very good job. I mean, this late in the thread, for you to claim
When in the very post you seem to be responding to, I'd written of such large businesses:
And in my transcript of my GRT conversation with my Dad I'd written:
***
So whatever. Rave on, Marc or Marcs (Marx?).
One of you even finds occasion -- and this is really delicious if you're into revealing the audacity of others -- where you blame me for making you so angry that you misrepresented the GRT as never affecting business location (for best effect, imagine this uttered with back of hand on forehead, Tennessee Williams-style):
So, seeing as I had already acknowledged it on several occasions, you basically misrepresented me in order to explain why you misrepresented the GRT, which I was not alone in catching you doing.
Kind of a tour de force, I must admit.
As I say above, some businesses affected would not close or could not move. And in another economy or another city at a different time, that might be enough to argue for such an overall business tax hike. But in Philly 2009 -- home of the highest business taxes in the U.S. -- where raising taxes on thousands of large businesses that really can move and are fighting to stay open in a recession, for me that's just not good enough.
At least not when there are other (albeit lousy) choices that don't have quite the potential for creating an even worse aftereffect on the economy. Just because Comcast or a surgical unit won' close or move doesn't mean a CC design or internet business won't or a even NE big box, which CC liberals may never see, but whose taxes pay for the social programs we love.
That's a gamble, oh Monte Carlo martini-drinker (I guess if there are two of you, you can have it both shaken and stirred), that you're willing to take, and I'm not.
I've given my reasons. You've given yours. I think they're turning the lights on, and it's time to go home.
This is, at least, funny
Since I don't have the stomach to re-read everything you wrote (or I wrote, for that matter), I'm not going engage the kind of literary investigation you just under took. Anyway, that is your field not mine.
And I do think it is a little unfair of you to expect me to read what you are writing so closely when I've just gone two weeks on 2-3 hours a sleep a day.
But I will remind you that disputing the evidence about the importance of taxes is not the same thing as saying that taxes could be problematic. Policy makers have to make a lot of decisions based on sketchy evidence. The proper response to that uncertainty, however, is not to just cut taxes willy-nilly, but to try to figure out on the basis of theory and experience, where cutting taxes is useful and where it is not. That's what I've been doing ever since I started getting engaged in this issue/
In the very same posts where you wave in the direction of my arguments you don't really acknowledge how important they are because you keep talking about Stan and me as supporters of high taxation--which is totally misleading since we are both calling for targeted cuts in taxes--and you say that the the fundamental issue is whether business taxes are high or low, which is not the case if not all business taxes are the same in their effect on the economy.
In fact you do it once again:
While it is great that you are recognizing some complexity in business taxation here, this claim is wrong, in 2 respects. First, no one is arguing for an overall business tax hike. Stan and I are arguing for an increase in the GRT (not NPT) targeted on large businesses. (And I'm arguing for further targeting tax increases by offering one or another kind of city subsidy as a rebate for taxes on businesses for whom taxes might impact locational decisions).
Second, the state of the economy is irrelevant if we are targeting taxes right. In fact, at a time when businesses aren't moving or expanding much raising taxes are not likely to affect locational decisions. (We do need to be careful not to put anyone out of business but doubling the GRT for large businesses would still have a trivial effect on profits.) Moreover the negative effects on the business climate of massive social service cuts are as serious as the negative effects of the relatively small increase we are proposing in the GRT for businesses with high revenues.
I'm going on vacation now so this will have to end now, or rather, after your next response.
Marc, again with the bad examples
We made that building possible through significant tax incentives and also by having the RDA disengenuously declare a very prime bit of downtown real estate "blighted" so it could eminent domain the land and give Comcast nice clean package to build on. Its absurd for you cite one of the biggest and most notorious examples of state and city officials giving a large corporation a significant bribe in the form of a tax cuts to argue that businesses don't consider the overall tax burden in whether they locate in the city or not.
Since you need a refresher, from wikipedia about the tax incentives we gave Comcast:
Perhaps you want to change your reference to the other big office building to go up in Philly recently, CIRA Center. Oh wait, that was a KOZ and since a large number of its tenants were in fact businesses that were in fact already paying taxes at other locations in the city - it did in fact largely canibalize businesses already in the city. Many of the law firms renting CIRA, did precisely move across town, just to get a tax deal. For the record.
It would be really great to come up with an example of some recent dramatic new office construction in the city that did not involve tax bribes to seal the deal - but sadly there are none, Marc.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
In my opinion, you love this way too much
Retail businesses and services that bring their Philly customers and clientele with them across City Line Avenue or the Ben Franklin Bridge can avoid paying the GRT altogether if you bring their attention to that already-unpopular tax by raising it.
And if the last 60 years of Philadelphia history are an indicator, some will.
So your hike risks making things worse in a way that has big, recent precedents.
At what point will high tax advocates even consider that always choosing business tax hikes, or just plain old alway defending business taxes that are higher than every other city's in the U.S., may not be "just" -- may in fact be unjust in the long term -- if hikes perpetuate the decades-long loss of jobs and shrinking of Philly's tax base from which all social spending must come.
If a one-size-fits-all approach to taxation isn't working for one government, is it so much to consider changing your approach for that one government.
I'm reminded of a line from David Leonhardt's "Obamanomics" article last summer, when Obama said:
It's my observation that having the highest taxes in the land isn't working for Philadelphia. So while I reluctantly root for higher taxes in PA this year, and heartily call now for raising the top income tax rate to 50% nationally, I think my City, its economy, and especially its poor, are suffering from the longterm practice of taxing at rates that are higher than everybody else's.
Sam, why do we want for
Sam, why do we want for profit buinesses to employ folks in this city when everyone can easily be employed by the Federal, State and Local government, or maybe the universities. It would be a great place to live.
I work for a major Philadelphia law firm that employs 250 lawyers, and another 300 support staff, assistants, graphic designers, mail room folks, IT professionals, paralegals and file clerks. Our firm contributes hundreds of hours to the City's needy in the form of pro bono representation and sponsors major charitable events, as well as being heavily involved in the Bar Association.
While many of the folks who never worked for a for-profit entity like to vilify big-business, they fail to realize that aside from providing employment, civic leadership and paying taxes, businesses support the arts, the needy, our civic and cultural institutions. Consider that many of the folks on City public boards or the boards of charitable organizations are leaders in the business community who devote hundreds of hours to promoting Philadelphia and trying to make it a better place. Do we think CLS lawyers alone could represent the throngs of folks who need to stay foreclosure, or help homeless veterans recieve the benefits they are due? Of course not. It is impractical and could never happen.
If you make Philadelphia too expensive for law firms and professional service businesses to operate, and these are organizations not owned by stock holders in some far off place, but by partners and principals who are attached to the City, you too are being unfair and, in this instance, you are affecting the income of indivuduals who each own their own practice directly.
The business community in Philadelphia is not just mom and pops and then Comcast. There is a lot of in between. The business community is not just a parasite that takes from the City and gives nothing back.
Sam talks about credibility. The folks who ignore the good that the business community in this City does have no credibility to me.
I do feel like there was a misrepresentation in this thread
Yes if a CocaCola distributor wants to continue to sell to Philadelphians, they will pay the GRT on the transaction to make the sale and a reasonable enforcement effort will get the money.
If as Sam points out a graphic design firm, or architect, or professional or medical service is making the same choice, from this explanation the GRT clearly still effects their bottom line negatively for being based in the city and will be factored into mix in siting decisions. Sometimes urban cachet or convenience to customers may trump that issue, but often it won't and its mesleading to claim it will have no effect. I also feel there has been some intentional misleading on the enforcement possiblibities for the city. If the transaction happens in the burbs, the city de facto will not collect. I think some of the language in posts upthread were deliberately misleading on this front.
For retail or corporate offices where the calculation is really based on incremental factors the decision-making factor becomes significant and it makes a lot of sense sense why so much of our big-box and new office building construction continue to hinge on KOZ's and other tax deals that offset the negative impact of high biz taxes.
Is the GRT overly stigmatized in relation to an overall environment of high business taxes, a still truly awful permitting and licensing bureaucracy, perceptions of crime, municipal corruption and low-education workforce? Yes. But the claim that the exception would entirely negate the GRT as factor in job loss and regional competitivenes does not appear to be true either. It might be a less awful solution than for example the recently floated flat trash tax but it would still appear to be a factor in Philadlephia's capacity to attract new jobs.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
There has been no intentional or unintentional misleading
I don't know why anyone would read into anything I said that if a transaction happens outside the City, it is taxable under the GRT. The GRT is a tax on business activity that occurs in Philadelphia. Period. I don't know why anyone would think otherwise based on anything I've written.
I don't believe that I ever said that no locational decision would ever be made based on the GRT. What I have said is that the CES proposal would abolish the tax for 85% of current payers, and reduce it for many others. So those businesses certainly would have no incentive to leave based on the proposal. Another large portion of payers are already outside the City, and despite enforcement issues, many of them are most definitely paying the tax, and will continue to at whatever rate it is set. The City believes that much more can be collected from such businesses, and planned to hire more auditors to collect it. That plan may have been shelved or pared back due to the budget crisis.
I've also said that I believe levels of City services are a more important factor in many business location decisions than local tax rates. That is why there are so many business development districts in Philadelphia where businesses have voluntarily increased taxes on themselves in order to better clean and police their areas. To the extent that the CES proposal maintains or improves City services, that will be an incentive for business to stay or relocate here. Small businesses whose tax would go down under the CES proposal, might also be influenced to move here. So my bottom line is this: I believe a very small number of businesses, but probably not zero, would be influenced to move from the City due to implementation of the CES proposal. However, some other number, that may be more or less than the first number, would be influenced to stay or relocate here.
Finally what I've said is that the City faces bad choices. There are bad consequences to real people, mostly poor, that flow from the City not having enough revenue. If revenue can be found without raising any tax on anyone, I'm all for it. In fact I have made plain that I would like to lower local taxes. But if we have to bite the bullet and raise more money locally to preserve essential services, I'm for collecting as much of it as we can from out of city businesses, and large businesses that can afford to pay.
Do you have collection numbers on the GRT
How succesful is the city at actually getting the GRT from businesses serving Philadlephians located in surrounding burbs? Is it like the oh-so-succesfully collected "use tax"?
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Only the Revenue Dept knows for sure
Councilwoman Sanchez' office obtained a chart from Revenue last year that showed the number of businesses that paid more GRT to the City than Net Income Tax (for Tax Year 2006.) The total amounted to almost half of all Business Privilege Tax payers, 36,468 in all. These taxpayers paid about $56 million in total Gross Receipts Tax, compared to barely $8 million in Net Income Tax. It is my understanding that this group of payers include many who paid no net income tax at all.
This group of payers, as I understand it from the sketchy info that has been made public, includes basically two categories. First, there are those businesses in the City that find ways to attribute so much of their business to activity outside the City that they pay little, or in some cases no, net income tax. And then there are the businesses that are outside the City and rightfully pay no net income tax, but are still liable for the GRT.
I don't know the exact proportion between these two groups. But it's my understanding, informally, that many of these taxpayers are in group two. Unfortunately, the Revenue Department has been either unable or unwilling to provide definitive information on the actual breakdown.
Maybe you should explain to your dad
the difference between the physical location of the business and the location of its receipts.
It does not matter if a business is physically located in the city or outside the city if it does business in the city and earns receipts ther, it pays the GRT.
Now if a business does move outside the city lines and where it earns receipts changes, then it would of course reduce its taxes.
And that's why I've been urging us to focus on different kinds of businesses.
Some businesses sell goods at retail in local markets, either in just one location ( a mom and pop business) or in a series of locations ( a chain store.)
In these cases a business is unlikely to move out of the city if the GRT goes up because the business would lose city revenues by moving.
Some business sell goods and services at wholesale through distributors, eg an oil company.
Again, a business is unlikely to move out of the city if the GRT because the business will still pay on revenues earned in the city.
And there are some businesses where the markets are not quite as local, that is where people are willing to travel to buy goods. This is most likely when you are buying goods and services you purchase infrequently (washing machines) and where the goods and services are easily transportable or are intangible (eg accounting services.)
It is only in those cases, that an increase in the GRT is likely to encourage businesses to leave the city.
But, even then, there are other factors that keep them here. Surgery is purchased infrequently and legal services are intangible. Yet tertiary care hospitals and law firms congregte in center city. Why? Because of agglomeration economies: There are increasing efficiencies when highly specialized medical researchers and lawyers are easily accessible to one another and to their clients.
So
ignores a large number of reasons that lots of businesses can't or won't just "take their transactions outside the city and avoid the tax."
The GRT hurts our economy where it's possible to take transactions out of the city. And it doesn't where it is not.
Of course there are other reasons why businesses leave even when you can't take transactions out of the city. But that has to do with all those other factors that people who obsess about high taxes ignore.
Give it up, Marc
You misrepresented the GRT, and its potential affect on the local economy.
Just because some businesses wouldn't be affected doesn't mean people should think its ok that you made it sound like all wouldn't.
Honestly. Unless you have something new to add to this, let it drop.
"Evidence is sketchy"
Well, something is.
From Harvard Business School's Mihir Desai:
Regardless of the size of the role, according to Desai, the academic conversation regarding taxes and location is to what extent they play a role. Not whether they play a role.
Seems like I'm not the only one ignoring an academic fringe that says otherwise.
I've seen lots of econometric studies of taxation and cities, and I'm not aware of any that figure or conclude that taxes don't affect business decisions at all.
I mean, you can find an academic to question global warming, oppose evolution, and um, oh yeah, say that businesses can regulate themselves. Doesn't mean you should listen to them.
Minor point really, but when a government's policies end up really extreme -- such as having the highest business taxes in the United States -- it's time for a political community to ask whether extreme positions have been overly influencing conversation for a long time, mis-characterizing normal, and affecting policy.
Glaxo will not move from Philly
to avoid an increase in the GRT. It will pay the tax, at whatever rate we levy it, from wherever it is located. That's the law.
In a world of terrible choices for Philly, we have to make them. Even if we get everything the Mayor wants from Harrisburg, we will be cutting youth employment programs, closing pools, cutting library hours. That is resolving our economic problems on the backs of poor kids. What realistic alternatives do we have to preserve these services, without help from Harrisburg, than to go the GRT route? Yes, we may lose a Court case. It wouldn't be the first time ever. But we might well win, especially if we cast this tax package as an economic development measure.
But all of that legal discussion begs the key questions. Do we try to increase this very small tax for hardly anyone, while abolishing it for most? Do we ask Harrisburg for more help with another tax plan that they'll likely reject? Or do we just accept that we're going to start shutting down City services for kids?
Explain
From what I understand the GRT hits reciepts and wholesale goods. As I understand most of what pharma keeps in the city these days is strictly sales and specialized marketing and having a sales office in the city makes you more vulnerable to paying taxes for sales you make to consumers outside the city. It does not change the desire to sell drugs to city residents (they likely just pass on the extra costs to consumers in the city in as much as they can figure out a way to) but a corporate sales office located here absoutely has an incentive to move from the GRT as I understand it. Please elaborate.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
The tax hits receipts from sales to buyers in Philadelphia
So it doesn't matter whether the taxpayer is selling those goods into the City from the City, or from North Carolina. The GRT isn't paid on sales to persons or businesses outside of the City, although the Net Income Tax is. That's why at a recent conference, Bill Green mused that what we really ought to do is cut the Net Income Tax, and increase the GRT. The GRT has no impact on locational decisions.
OK. I stand corrected.
I agree a revenue neutral exemption on the GRT is a less onerous business tax than many of its other variations, parctularly in terms of relocating. Certainly than this flat trash tax. You win on this.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Illinois was looking at replacing a lot of taxes with a GRT
revenue neutral.
If it were not hiding an overall tax hike, which the media would root out and focus on, it's worth looking at.
Do retail businesses typically pay it? If so, how is it calculated -- since a shop owner doesn't always know the residency of his customers?
If a retail business were to move across City Line Avenue, is it likely that it would stop paying it, regardless of whether some of its customers were from Philly?
What I mean
My dad always says that smart legislators -- he wasn't talking about Philadelphia's I'm afraid -- calculate the ability to collect a tax when they write tax policy.
What he was talking about mostly were savvy Republican lawmakers in the 1990s who created window dressing taxes on the rich that were meant to look substantial, but were in fact meaningless because they were unenforceable.
I can't remember individual instances, but you can imagine an example: Senator Bluster from Idaho creates a tax on "business lunches," but it proves so onerous to collect -- how can you determine what is and isn't or to establish a paper trail -- that, in fact, the tax is meaningless and largely goes unpaid.
What I wonder about the GRT:
When retail businesses relocate from Center City to the Cherry Hill Mall or Suburban Square in Ardmore, are they supposed to continue paying the GRT?
Do they?
When Philadelphians spend their December paychecks on Christmas gifts at the Cherry Hill Mall, instead of on Market Street or Walnut Street, do those businesses really continue coughing up their tax payments?
When businesses stop receiving services from a government, doesn't the likelihood that those businesses will continue paying that government's taxes -- in reality -- drop?
Doesn't a city's ability to collect taxes from businesses drop when those businesses are no longer located in it?
If so, wouldn't that mean that raising the GRT on a Center City business -- let's say a custom shirts store -- really might create an incentive for that business to move to Ardmore, even if the proprietor believed she could keep most of her Center City clientele, since she likely is escaping the city's ability to collect the tax?
Sam, you, and all of us, need to calm down
And I'm not just talking about this last post, but all of them on this thread. I think those of us who have been commenting today, from what I know of you, are all interested in advancing social justice in this City. How are we going to do it if we keep yelling at each other? I'm convinced neither you or Marc are willfully trying to ignore evidence or facts. But the facts are that the facts about what drive business decisions are unclear and/or complex.
Having been away all day, I'll just try to redirect attention a little bit to something I said earlier. That is that we have lousy choices. We don't have a choice that will obviously result in no tax increases and adequate services. If so, I haven't heard anyone put it forward. We have to make a choice between the best tax increases we can think of, or less services. I know that there is a theory that lower business taxes will ultimately result in more economic activity and thus more revenue than is lost, but I think you agree that, at best, it is unproven.
So, none of us have an answer and we should be humble about that. Personally, I want to take risks on policies that are themselves just since it may turn out that they also have just after-effects, such as equitable growth. Other policies that are not just may also have good after-effects, but since we don't know, I don't advocate them.
Yes, a GRT increase on high revenue businesses may create collection difficulties, may leave a bad taste in some mouths causing businesses to flee, and may cause other bad things I can't even anticipate. But to me that's a better risk than the risk of immediately having to cut programs for kids because we can't balance the budget without the extra revenue that the CES proposal would bring.
Finally I want to reiterate that as a general matter I, and I'm sure Marc, would much rather raise revenue from other jurisdictions than from any local taxes. I think the state and federal governments ought to (re)create revenue sharing programs that recognize that the plight of cities damages the state and nation. There are any number of other ways these other jurisdictions could treat us more fairly and enable us to reduce local taxes. And I think we ought to think of ways to make our state and federal elected officials put those things on their agenda. But in the meanwhile, we have these terribly hard choices. I have made mine and I respect the ones that everyone else has made. I did hope -- and still hope -- that my GRT proposal could move us toward common ground. If not, I do hope we can find it somewhere else. Without agreement on something as fundamental as who pays the price of civilization here in Philly, it's hard to believe the fragments of our movement will ever find a way to unite. And that will be too bad.
Gee, it's really a shame you can't buy anything in Center City
All the retail shops have left and gone to Cherry Hill and Suburban Square.
The big box stores have fled as well. You got to go to Willow Grove or Plymouth Meeting to find a Best Buy or Sears or an Ikea.
And there are no restaurants either. Everyone goes to the suburbs to eat good food.
Some fools argued that there some kinds of businesses are less responsive to local tax rates than others because they mostly serve a local market. They cited business school texts about how retailers draw the polygons that show where there market is.
They argued that if we want to use taxes wisely, we would target tax cuts on businesses that have broader markets, like hi-tech or small manufacturing.
But they were wrong.
And now despite all the rich people who moved here as a just because of the real estate tax abatement and despite the lack of anything to actually do in the city, Center City is a vast wasteland when it comes to retail and restaurants. It's been declining for fifty years and shows no sign of turning around.
Not to interrupt the sarcasm
but I'm pretty sure there is only one Sears left inside city limits and it is on the 7300 block of Bustleton way up in NE. I note because I have been at times a little bit of a tool geek and really on certain things Craftsman is a better overall option than anything equivalent in price at HD or Lowes and I have actually personally journeyed to either Upper Darby or across the Whitman on several occasions specifically for items in the Craftsman catalog. Not that it proves anything at all, but it probably should not be on the sarcasm list.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Stier Finishes Market Street Retail Corridor Plan
Macy's is still there?
Check.
Done.
Now I can go stand on 8th Street and ask if people want their martinis shaken or stirred.
the irony of Stan's choice to focus on Glaxo
"Glaxo picks RTP over Philly, announces 1,800 job cuts"
http://triangle.bizjournals.com/triangle/stories/2008/11/03/daily26.html
And the article explained
And the article explained the reason why this way:
"RTP was picked over Philadelphia in part because the company has a bigger footprint here . . . The company has about 5,000 workers in RTP and owns 35 buildings on that campus. In Philadelphia, the employee base is about 1,500, and GSK leases real estate."
It did not move because of the GRT.
ENOUGH!!!!
Has anyone noticed that as the mean-spirited, testosterone-inspired pissing match gets longer and longer, the number of other posts at this site drop proportionately?
I know, I know, glass houses and all, but I'll just say that it would be far more interesting for this reader to just read the opinions without all the shit-slinging.
and **I'm** the tendentious pedant
If i have learned anything from the Marc/Sam debate it is that i am nowhere near the tendentious pedantic guy who deals in overstatement. i don't come close to you guys.
Jesus-f'ing-Keeeeerist, why don't you guys just meet at the flagpole after school and duke it out? Sam can even bring his dad to referee if things get out of hand.