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Who Do Business Tax Cuts Benefit?
A while back, we requested a bunch of data from the City on business tax records. The idea was that before we start cutting taxes more, we should look at the data, so that we can use reality-based policy making. (See here and here.) The City said they needed thirty days to respond to their request. The solicitor told us that, in effect, as long as names of businesses were shielded, it was our right to get the information. However, thus far, the Department of Revenue has only given us a small piece of information. So, with the legal opinion of their own law department saying they are obligated under the law to give us the info, we are going to try one more time. (More on this new request in a follow-up post.)
However, we did get a small piece of info from the City so far, and at the very least, we can see just who these tax cuts benefit. The chart below divides the 77,000 payers of the BPT (in 2006) into two categories: The first (the red bars) is businesses that paid over $100,000 in business taxes. There are 446 of these. The second category is everyone else- the 76,600 payers of the BPT that paid less than 100,000 in taxes in 2006. They represent 99.5% of the number of BPT payers.
The second and third sets of columns show us two main numbers: how much each category of business would save from elimination of the gross receipts tax, and how much each category of business would save from cutting the net income tax from 6.5% to 4%.
I had to put those blue arrows in, because otherwise, it is hard to see how much the bottom 99.5% of Philly businesses save from BPT cuts- $574 a year from net income cuts (over a long period of time), and $734 a year from the elimination of the gross receipts tax. The net income tax cut, for example, would be about enough for 99.5% of Philadelphia businesses to hire one minimum wage worker for all of... two weeks. I know it is called job killing and all that by Philly Forward and the like, but... I don't see it.
The vast majority of Philly businesses don't get a whole lot from tax cuts. How about the 446 that make up the top one-half of one percent? They do just fine. As the red bars show, the two tax cuts net them $149,000 and $77,000 bucks a year, respectively. The top 0.5 percent of our businesses together take over 50% of the total tax breaks.
Again, just the net income portion of tax cuts: Biggest 446 businesses net an average of $149,000 a year. The other 76,000? About 500 bucks.
If we want to target tax breaks to small businesses, fine. But, we should be clear about a couple things: Even at the biggest projection of tax breaks, the vast majority of Philly businesses will not be 'saved' by an extra 100 dollars a month. And, they will not all of a sudden be able to hire a number of additional workers. What will happen is that the biggest 446 businesses will get themselves a nice chunk of change.
We will have more data soon, when the City gives us the information that they are legally obligated to give us. But for now, even with this most basic data, I think City Council and the Mayor should slow down on BPT cuts and figure out if there is a targeted way to help small businesses. Because this is not it.
We will follow up, with our new request within the next day. Again, if the city decides to cut taxes, that is a policy decision. But we should make it with reality-based decision making, not hidden numbers and empty slogans.