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Tax me up, tax me down
Submitted by Ray Murphy on Thu, 04/09/2009 - 10:34pm.
So there was an interesting article in the CP about Independents Hall this week. Check it out.
Independents Hall is a co-working space in Old City. You pay $25 or $50 a month and you can camp out with your laptop and work. It's great for contractors and self-employed folks. You have a desk, a place to go, people to talk to, but you are still on your own. I was actually a full-time employee at MoveOn.org most of last year, but got to work from home so I had seriously considered joining up...but...my cat needed me at home. Nonetheless, it is a great idea.
The upshot of today's article is that Independents Hall might move because the demand for their services has grown so much. The data in the article isn't that helpful in terms of a real local number, and I am too lazy to look for more info, but it seems likely that the number of independent contractors in Philadelphia is growing. And it made me think a little bit about real tax reform.
See I just paid my taxes and for the little bit of independent contracting I did do last year, I have to pay BPT. And the rate of taxation on the money I earned is 10% (that rate varies for different people depending on how you offset net profits and gross receipts). Whereas if I had earned my money in a "normal" W-2 style, I would have just paid the 4% wage tax. So that's pretty obviously unfair. But the answer is not to do away with business taxes or even to abate them. The answer is an income tax filing process.
If we had an income tax and a return that captured all forms of income, I could still pay my fair share but at a better rate. Not to mention that I suspect there are a lot of people in Philly who get maybe one or two 1099s from work that they do on the side of their main job. And I bet many of them are not filing business tax returns or even know that they need to. Which means the city is losing tax revenue.
If all Philadelphians had to do an income tax return though, people'd be forced to list contracting and other sources of income. Which means the city would make more revenue. New York City does this and they save even more money--and make it easier for folks--by just piggy-backing off the state income tax reform. I am not totally sure how it works, but my guess is that the state just writes the city a check for whatever portion of tax revenue is allocated to the city.
If more and more people begin to earn money from independent contracts (and we all know a lot of employers are outsourcing work this way) it'd make sense to have a fairer tax that the city collects from more people.
A local income tax would help.
I'm going to remember this day
the day Ray Murphy came out swinging for tax reform against anti-startup, anti-independent contractor business taxes.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
To say that rates should be fair
is not to be against business taxation. Small independents should be exempted from the gross receipts tax, which is the position of the Coalition to Save Essential Services. That group is decidedly not against business taxes, but decidedly for fairness. It suggests that the exemption for small businesses cold be offset, and more, by rolling back recent rate cuts for larger businesses.
CES is also for graduated taxation which, in its pure form, is not on the table due to the uniformity clause. If a graduated business net income tax were in effect, Ray would pay much less, Comcast and Walmart much more.
Stan
I'm not sure if the sense of humor I intended to imply in my last post failed to come across because it got garbled at the broadcast or the receiving end, but I have my suspicions.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
To be clear
What is a fair share?
I guess I'm having trouble with this concept. What does fair mean? What makes the current wage tax rate fair? Has it always been fair, even when it was higher? Will it still be fair if it's reduced further? There is nothing enlightened about the wage tax policy, and it's admittedly frustrating to see an increase being trumped by Council and progressives in opposition to the property tax.
To me, determinations of tax fairness on each individual should start on a lower level before considering the normal criteria such as "ability to pay" or "benefits received" conditions: whether their income is earned or unearned. If it is earned through what society deems legal and honest means, such as working a job or running a business, taxing it at any rate is unfair. Looking at what you personally earn, how much do you think is fair to be taxed away? 4%? 10? 50%? It's always interesting to ask that question.
On the other hand, if the income is unearned, whether through illegal means such as theft or legal means such as capital gains or inheritance, the perspective on taxing it is very different. If someone pulls fraud and gets caught, they will have this "income" entirely confiscated; this is fair. If someone gains income through a bequest or (in most cases) the appreciated land value of their property, a heavy tax that reclaims 50% or more of the value is significantly fairer due to the origin of the income. If I receive $200,000 more on my house than I originally paid because SEPTA announces a new rail line in my neighborhood, how much of that income should I deserve to keep? How much should the govt. tax back to fund the train? 100%? 50%? 0%?
Almost everyone in the tax reform debate ignores this important distinction.
I got the joke...
please keep 'em coming Mr L.