City closing tax burden gap with suburbs

**billy ross** · 09-20-2012, 08:37 AM

Phila. residents' tax burden has eased, compared with suburbs

The city's total tax burden gap with the PA suburbs has gone from 3.7% of income to 0.7% of income from 2000 to 2012 - we're closing that gap by all accounts, although you can bicker about by exactly how much, since not all suburbs are the same. The overall point is the same, though - Rendell's plan is working. Meanwhile the city wage tax will drop again come July 1. The reasons for the evacuation of the city during the bad old days are slowly going away one by one, with predictable results. We still have alot of work to do here - we're nowhere near where we need to be, but there's noticeable, measurable progress, and this helps us see that there's light at the end of the tunnel, and it's not an oncoming train.

**BarryG** · 09-20-2012, 09:24 AM

Sounds like the only reason for the drop is underrassessed properties and that will vanished when AVI goes into effect.

**raider.adam** · 09-20-2012, 09:25 AM

Originally Posted by billy ross

Phila. residents' tax burden has eased, compared with suburbs

The city's total tax burden gap with the PA suburbs has gone from 3.7% of income to 0.7% of income from 2000 to 2012 - we're closing that gap by all accounts, although you can bicker about by exactly how much, since not all suburbs are the same. The overall point is the same, though - Rendell's plan is working. Meanwhile the city wage tax will drop again come July 1. The reasons for the evacuation of the city during the bad old days are slowly going away one by one, with predictable results. We still have alot of work to do here - we're nowhere near where we need to be, but there's noticeable, measurable progress, and this helps us see that there's light at the end of the tunnel, and it's not an oncoming train.

If you read the article, the City isn't closing the gap, the suburbs are. The gap is closing because the suburbs have significantly raised their taxes. Of course it also doesn't factor in quality of services delivered either, just average tax liability for a family of 4. We also have the waiting disaster of the pension debt (I would be curious to see a comparison of that between Philadelphia and the suburbs).

Overall, yes it is good for Philadelphia when the costs of living in the suburbs goes up, but let's not incorrectly report the reasons for it.

**raider.adam** · 09-20-2012, 09:26 AM

Originally Posted by BarryG

Sounds like the only reason for the drop is underrassessed properties and that will vanished when AVI goes into effect.

The wage tax drop from casino revenue was big too.

**billy ross** · 09-20-2012, 09:47 AM

Originally Posted by BarryG

Sounds like the only reason for the drop is underrassessed properties and that will vanished when AVI goes into effect.

Nope. Dropping the wage tax was huge.

Also, AVI won't dramatically increase the overall tax burden/take. It'll make a marginal difference at most at this point, after so many millage increases. The millage increases grabbed most of the revenue increases Nutter was looking for, and the analysis fully takes into account all of the millage increases to date. This is citywide - individuals will of course see larger swings, up as well as down.

Adam - one tax burden is going up. The other is going down. That's huge. You're not giving the city enough credit. Keep in mind that during that period the state income taxes - which factor into the state and local combo - went up, from 2.8% to 3.07%. Thus the city completely absorbed that and was able to counteract it by lowering city taxes by even more, while the suburbs added even more taxes to the state's increase, thus giving us the outcome we see in this report.

**carloss** · 09-20-2012, 10:24 AM

As was discussed in the article and as Adam also mentioned, the amount of taxation needs to be presented in the context of quality of services. It's good news, no doubt, that Philly isn't that far off from the suburbs; I had assumed the gap to be much wider. Just that the tax burden in the suburbs (i.e. property tax) is still not seen as a liability for families who expect functioning schools, clean streets, etc.

And I'm surprised more isn't being said about city pensions when analysts predict, in five years, pension payments will completely dry up...

**thoth** · 09-20-2012, 10:31 AM

Originally Posted by raider.adam

If you read the article, the City isn't closing the gap, the suburbs are. The gap is closing because the suburbs have significantly raised their taxes. Of course it also doesn't factor in quality of services delivered either, just average tax liability for a family of 4. We also have the waiting disaster of the pension debt (I would be curious to see a comparison of that between Philadelphia and the suburbs).

Overall, yes it is good for Philadelphia when the costs of living in the suburbs goes up, but let's not incorrectly report the reasons for it.

According to the Pew researcher I spoke with, the biggest factor in the study was the overall increase in property value that pushed up the regional median home price and therefore the effective tax rate. The increase was more strongly felt in the suburbs over the city because of our broken property tax system.

The second biggest factor was the overall uptick in suburban tax rates, but this was matched to a small extent in the city via sales/property tax increases of our own, and had a smaller influence on these numbers.

So in other words, yes, AVI could wipe out some of this advantage, depending on how it's implemented.

http://americancity.org/daily/entry/...suburbs-rising

**Naveen** · 09-20-2012, 10:44 AM

Originally Posted by raider.adam

The gap is closing because the suburbs have significantly raised their taxes.

Socialsim!

But seriously, I think Billy is right -- you're not giving the city enough credit; a lot of us remember the bad old days of the 90s (and before) and how even those of us who wanted to live in the city often chose the burbs because of the cost difference. And as Billy acknowledges, there's a still a long way to go. To me, the school district issue and then crime, followed by general QOL in certain neighborhoods are the real difference in "cost".

**raider.adam** · 09-20-2012, 11:07 AM

Originally Posted by billy ross

Nope. Dropping the wage tax was huge.

Also, AVI won't dramatically increase the overall tax burden/take. It'll make a marginal difference at most at this point, after so many millage increases. The millage increases grabbed most of the revenue increases Nutter was looking for, and the analysis fully takes into account all of the millage increases to date. This is citywide - individuals will of course see larger swings, up as well as down.

Right now we don't know. The study was based on someone owning a home valued at $180K (I think). If on average AVI will raise the tax burden on a house at that price, then yes, that number they are basing their study on will go up.

Adam - one tax burden is going up. The other is going down. That's huge. You're not giving the city enough credit. Keep in mind that during that period the state income taxes - which factor into the state and local combo - went up, from 2.8% to 3.07%. Thus the city completely absorbed that and was able to counteract it by lowering city taxes by even more, while the suburbs added even more taxes to the state's increase, thus giving us the outcome we see in this report.

The biggest drop in taxes in Philadelphia had nothing to do with City Hall. The wage tax drop from casinos was state legislation. If not for Harrisburg and casinos, our wage tax would still be over 4.2%. (And for the record, several Philadelphia politicians have tried to get that redirected to schools instead.)

If you remove caisno wage tax, that covers .3% of the drop right there. The rest, as has been mentioned, is probably because our property tax system is screwed up.

Originally Posted by thoth

According to the Pew researcher I spoke with, the biggest factor in the study was the overall increase in property value that pushed up the regional median home price and therefore the effective tax rate. The increase was more strongly felt in the suburbs over the city because of our broken property tax system.

The second biggest factor was the overall uptick in suburban tax rates, but this was matched to a small extent in the city via sales/property tax increases of our own, and had a smaller influence on these numbers.

So in other words, yes, AVI could wipe out some of this advantage, depending on how it's implemented.

Originally Posted by Naveen

But seriously, I think Billy is right -- you're not giving the city enough credit; a lot of us remember the bad old days of the 90s (and before) and how even those of us who wanted to live in the city often chose the burbs because of the cost difference. And as Billy acknowledges, there's a still a long way to go. To me, the school district issue and then crime, followed by general QOL in certain neighborhoods are the real difference in "cost".

To be fair to it, not "certain neighborhoods" but "most neighborhoods". Which is the point I am making and what needs to be kept in perspective. Their analysis is based on the $188K home for a family of four and a household income of $60K. These aren't Center City quality of life neighborhoods.

**thoth** · 09-20-2012, 11:07 AM

Originally Posted by Naveen

Socialsim!

But seriously, I think Billy is right -- you're not giving the city enough credit; a lot of us remember the bad old days of the 90s (and before) and how even those of us who wanted to live in the city often chose the burbs because of the cost difference. And as Billy acknowledges, there's a still a long way to go. To me, the school district issue and then crime, followed by general QOL in certain neighborhoods are the real difference in "cost".

Since then the city has raised property taxes twice, the sales tax, and implemented only a fraction of the wage and biz tax reductions it had planned. What do they deserve credit for? The suburbs are driving this trend.

**Naveen** · 09-20-2012, 03:38 PM

Originally Posted by thoth

Since then the city has raised property taxes twice, the sales tax, and implemented only a fraction of the wage and biz tax reductions it had planned. What do they deserve credit for?

I can only defend the city one time per thread. Any more and my stomach hurts.

**billy ross** · 09-20-2012, 04:34 PM

Originally Posted by raider.adam

Right now we don't know. The study was based on someone owning a home valued at $180K (I think). If on average AVI will raise the tax burden on a house at that price, then yes, that number they are basing their study on will go up.

The biggest drop in taxes in Philadelphia had nothing to do with City Hall. The wage tax drop from casinos was state legislation. If not for Harrisburg and casinos, our wage tax would still be over 4.2%. (And for the record, several Philadelphia politicians have tried to get that redirected to schools instead.)

If you remove caisno wage tax, that covers .3% of the drop right there. The rest, as has been mentioned, is probably because our property tax system is screwed up.

To be fair to it, not "certain neighborhoods" but "most neighborhoods". Which is the point I am making and what needs to be kept in perspective. Their analysis is based on the $188K home for a family of four and a household income of $60K. These aren't Center City quality of life neighborhoods.

You're already forgetting your point, which is that we're chasing a moving target. Even if on average AVI causes taxes to go up on the theoretical $180k house owned by the theoretical couple earning $60k, as long as our taxes don't go up by more than the suburbs' taxes go up, we'll still continue to make up ground.

And I said this was all driven by Ed Rendell, not City Hall. I stand by my point. Higher suburban taxes? Ed Rendell. Lower wage tax in Philly? Ed Rendell.

Originally Posted by thoth

Since then the city has raised property taxes twice, the sales tax, and implemented only a fraction of the wage and biz tax reductions it had planned. What do they deserve credit for? The suburbs are driving this trend.

Now you're being ridiculous. You know as well as I do that City Council has rightly decided to work on making business taxes make some sense, and it's already paying off with multiple companies relocating into the city because of our newly business-friendly tax regime. I'm not saying that we've fixed our business taxes yet, but we've ameliorated them enough to draw new companies here, seemingly on a weekly basis. That's what City Hall deserves credit for. With each new maker that moves into Philadelphia it becomes that much easier to not only lower our tax rates, but to improve the quality of city services, both of which are happening, by the way.

I also don't agree with the argument that suburban services are wholly better than city services. I know people who live just over the city line because they want to be as close to the city as they possibly can be without paying a dime into it. Why? Because the city offers higher quality places and experiences than the suburbs do. That's a type of service offered by the city. My son plays fall ball for the 21st Ward in Upper Roxborough and I found out last night at practice that both of his coaches live in Flourtown but send their sons to the city's rec facilities to play baseball with my son. I wonder why? What kind of Rec facilities does vaunted Lower Merion have for their kids? Crappy, compared with the infrastructure we have here in Philly. I know because Lower Merion Soccer Club has been searching desperately for years for a home and they just found one temporarily between Conshohocken and Norristown, on my side of the river. Low quality of life Lower Merion didn't have any land for them to use, nor even a boathouse on their nine miles of Schuylkill River frontage.

**raider.adam** · 09-20-2012, 04:47 PM

Originally Posted by billy ross

You're already forgetting your point, which is that we're chasing a moving target. Even if on average AVI causes taxes to go up on the theoretical $180k house owned by the theoretical couple earning $60k, as long as our taxes don't go up by more than the suburbs' taxes go up, we'll still continue to make up ground.

And the issue raised is that we aren't completely sure who it works out once they fix property taxes*. I'd also say just doing a study on a single family type is not the best analysis. Especially since NJ has a progressive income tax (and that would be favorable to PA and Philadelphia). Either way, the main point is that while it is good that over the last 10 years the tax burden for residential Philadelphia home owners has remained relatively stable, the movement on the gap is due to the suburbs paying more taxes while still typically getting better services on average.

* Did they base it on the average taxes actually paid by a $188K home or what it would be if actually assessed at $188K?

And I said this was all driven by Ed Rendell, not City Hall. I stand by my point. Higher suburban taxes? Ed Rendell. Lower wage tax in Philly? Ed Rendell.

Yes, that is true, but you also followed up with "You're not giving the city enough credit."

Now you're being ridiculous. You know as well as I do that City Council has rightly decided to work on making business taxes make sense, and it's already paying off with multiple companies relocating into the city because of our newly business friendly tax regime. I'm not saying that we've fixed our business taxes yet, but we've ameliorated them enough to draw new companies here, seemingly on a weekly basis. That's what City Hall deserves credit for.

I don't think the business tax fixes have been implemented yet, right? Don't they have more time to phase in? And yes, (2 sessions ago?) Council did start on the right track finally on business tax reform. I hope they continue it

**raider.adam** · 09-20-2012, 04:50 PM

I'm not bitching about City Hall to just bitch about City Hall, but the report needed to be put into perspective. It is the equivalent of being happy about your salary because your neighbor took a pay cut.

**billy ross** · 09-20-2012, 05:07 PM

Originally Posted by raider.adam

And the issue raised is that we aren't completely sure who it works out once they fix property taxes*. I'd also say just doing a study on a single family type is not the best analysis. Especially since NJ has a progressive income tax (and that would be favorable to PA and Philadelphia). Either way, the main point is that while it is good that over the last 10 years the tax burden for residential Philadelphia home owners has remained relatively stable, the movement on the gap is due to the suburbs paying more taxes while still typically getting better services on average.

* Did they base it on the average taxes actually paid by a $188K home or what it would be if actually assessed at $188K?

Yes, that is true, but you also followed up with "You're not giving the city enough credit."

I don't think the business tax fixes have been implemented yet, right? Don't they have more time to phase in? And yes, (2 sessions ago?) Council did start on the right track finally on business tax reform. I hope they continue it

They seem to have chosen a household making the US median income living in a house which costs the US median, and they seem to be using the effective tax rates, not the statutory tax rates. All this sounds fairly reasonable to me, even if that median income family living in the median cost home is somewhat specious here in Philly.

The business tax reforms have been implemented enough that the big venture capital firm (4th busiest in the US?) moved into their corporate offices into incubator space in the old Urban Outfitters in University City and brought one of their client firms from Silicon Valley into Northern Liberties. Do you not read the papers? As far as I know, financial firms are now exempt from some tax they find to be onerous (business privilege tax? Net profits tax? Not sure which) and now multiple firms of this type have relocated into the city, whereas before none were located in Philly outside of Keystone Opportunity Zones (2929 W. Arch Street is a big choice for them) where they are exempt from that tax anyway.

**raider.adam** · 09-20-2012, 05:45 PM

Originally Posted by billy ross

. Do you not read the papers?

Whatever.

**Naveen** · 09-20-2012, 06:05 PM

Originally Posted by billy ross

As far as I know, financial firms are now exempt from some tax they find to be onerous (business privilege tax? Net profits tax? Not sure which) and now multiple firms of this type have relocated into the city, whereas before none were located in Philly outside of Keystone Opportunity Zones (2929 W. Arch Street is a big choice for them) where they are exempt from that tax anyway.

Are you talking about the partnership tax on investment firms? That's what the Council eliminated, allowing First Round Capital to move from Conshy into the city (with supposedly more VCs to follow).

It's interesting: the tax effectively kept investment partnerships out of the city. So naturally, there were few investment partnerships in the city. This meant the partnership tax on investment firms brought little into the city's coffers...so, eliminating the tax didn't really hurt the city's finances.

Law partnerships on the other hand? The city makes too much off of them to cut their taxes anytime soon, and many of them can't relocate because the city is the kind of place many of them need to be.

**raider.adam** · 09-20-2012, 06:41 PM

Originally Posted by Naveen

It's interesting: the tax effectively kept investment partnerships out of the city. So naturally, there were few investment partnerships in the city. This meant the partnership tax on investment firms brought little into the city's coffers...so, eliminating the tax didn't really hurt the city's finances.

Correct (and was a separate bill I believe from the main business tax reform bill). The argument against is "why are you picking a specific industry", but Bill Green's point is since there were no firms to begin with, eliminating it doesn't hurt anything and brings in revenue from wage tax of more commuters.

Personally, I think it is a microcosm of the grater argument. Who cares about the business taxes. Get rid of them, get businesses locating here (and the ones already here able to be more competitive) and work on generating taxes from the wag tax/commuter tax and property taxes and sales taxes.

In essence the loss in salary for commuters in wage tax in the long run can be gained by more competitive job opportunities in a compact area (and in a transit friendly area).

**billy ross** · 09-20-2012, 07:11 PM

Here we agree. I was disturbed by the point in the article that said commuter taxes have collapsed in my lifetime as jobs relocate outside the city. How could we have shot ourselves in the foot like that?

Originally Posted by raider.adam

Correct (and was a separate bill I believe from the main business tax reform bill). The argument against is "why are you picking a specific industry", but Bill Green's point is since there were no firms to begin with, eliminating it doesn't hurt anything and brings in revenue from wage tax of more commuters.

Personally, I think it is a microcosm of the grater argument. Who cares about the business taxes. Get rid of them, get businesses locating here (and the ones already here able to be more competitive) and work on generating taxes from the wag tax/commuter tax and property taxes and sales taxes.

In essence the loss in salary for commuters in wage tax in the long run can be gained by more competitive job opportunities in a compact area (and in a transit friendly area).

**raider.adam** · 09-20-2012, 07:14 PM

Originally Posted by billy ross

Here we agree. I was disturbed by the point in the article that said commuter taxes have collapsed in my lifetime as jobs relocate outside the city. How could we have shot ourselves in the foot like that?

Yeah, people talk about how we should have a regional tax to fund stuff that benefits the region. We sort of do. The commuter wage tax. Of course the amount we draw on it correlates with our relevance to the region (jobs).