Philadlephia Forward's Skewed View of "Fairness" in City Tax Policies
The discernable bias toward the city relying on and shifting city taxes to real estate taxation is readily seen in today’s Philadelphia Forward message from Brett Mandel. Brett riffs off the recent Philadelphia Parks Alliance report on the value that parks adds to our City (no controversy there) to assert beyond the report’s contents, that it additionally demonstrates the great value of the real estate tax system, and its need for a re-assessment because the latter can readily capture this added value.
The “spin” enters when he says how much better real estate taxation is—even when it increases under a re-assessment in contrast to those awful business and wage taxes, which happen to provide the City with the majority of its revenue to provide services to us all, including those wonderful parks that Brett starts out with. He takes a gratuitous whack at business and wage taxes, asserting with no evidence, or as the lawyers say, ex cathedra, that wage and business taxes are not very connected to public investments (even if they together provide the majority of City revenues that fund public investments), and that if there are public revenue investments from these taxes, even ones that attract people into the City, this doesn't mean, he blithely asserts, that wages or businesses will grow. The implication is that we should get rid of wage and business taxes and switch to wonderful real estate taxation—which is a major switch to residents of the City, many on fixed or low incomes, and away from businesses who would never pay their fair share as citizens of our community. Sounds like Philadelphia Backward to me.
Philadelphia Forward seems, under the guise of pressing for a “fair” real estate tax reassessment (which can, I readily acknowledge, help many who are over assessed, while also hurting many fixed-income people living close to the underassessed), to be seizing every opportunity to say real estate taxation, and increases in real estate taxes, are best for the City. This radical (and largely unadvertised) push to shift from business and wage taxes to real estate taxes, with concomitant increases in real estate taxes would occur even if the latter makes housing unaffordable for fixed income and low income residents, and even if it deters people from moving here or staying here because of the size of real estate taxes.
Philadelphia Forward’s view of “fairness” in taxation appears rather skewed, and perhaps self-servingly selective. Note Brett’s recent criticism in the June 13, 2008 Inquirer story by Jeff Shields on Councilwoman Sanchez' excellent bill simply to have those paying business taxes report on a clear one page form what their income and taxes are to help determine whether all are paying their fair share to make our City livable and attractive to businesses. The Councilwoman’s bill is premised on Revenue Dept. data that 2/3 of businesses with annual revenues of over $10 million in FY06 pay virtually no Net Income Tax! (This data has been the unpleasant secret of Revenue Depts. over the years, and has never seen the light of day--as its rather embarrassing to Mayors and Revenue Commissioners, as well as complicating the push to reduce business taxes, which has never countenanced lawless avoidance of paying these taxes.)
Business Privilege Tax avoidance robs the City of tens, even hundreds of millions in revenue. You'd think that businesses paying their taxes might be a bit angry about their brethren avoiding the same taxes. Either they have been in the dark too, or maybe there's something of a conspiracy of silence in the business community not to air this soiled laundry. Brett--who vociferously demands absolute fairness in real estate tax valuation, so that those underassessed pay their fair share of real estate taxes--now says, according to the Inquirer, that fairness ends when it comes to the business tax, and, in opposing Councilwoman Sanchez’s bill, defends business tax avoiders.
Lots of sunshine needs to be shone on the Business Privilege Tax, as its been a convenient punching bag with little understanding of who pays it (e.g. lots of out of city and international companies who would never move here pay it and don’t need any breaks), and who doesn’t pay it (tax avoiders, banks, insurance companies, utilities). Simplistic measures to end the tax preclude more analytical responses which could target “tax reform” to small businesses or start-up businesses (the “poster children” of the BPT cutters) instead of the Wal-Mart’s, Sunoco’s and Comcast’s, who don’t need this tax cut to do business here. Surprisingly, fairness within the BPT has virtually never been the subject of any public discussion nor councilmanic initiative before Councilwoman Sanchez’s a week ago.
Data, coughed up by the Revenue Dept., and also never made available before, shows the amount of BPT paid by size of company (measured by revenues), and clearly allows a more targeted approach to BPT reductions--e.g., cuts can be targeted to all small, and even medium size businesses, while retaining the majority of over $400 million in BPT revenues for needed public investments that businesses place a high value on like: education and a skilled work force; transportation and infrastructure; public safety and quality of life; etc.
Fairness in the highly regressive wage tax--where multi-millionaires now pay the same rate as the working poor, working at unlivable earnings—was embodied in the Cohen Ordinance for a wage tax credit for those eligible for Tax Forgiveness under the state income tax (less than about $32,000 a year). Yet where were the “tax reformers” and Philadelphia Forward when Mayor Nutter in January first proposed its elimination, and then agreed with City Council to a much watered-down version that would be delayed yet another year, 6 years from now!
We all need to return to the values of equity and real fairness in all forms of taxation through a progressive tax structure, where those with greater abilities to pay do so, and contribute fairly to the civic society that they and we are all a part of. We can’t have selective, and subjective applications of fairness drive tax policy.
Jonathan Stein
For the record
To me this reads as much like an endorsement of the value funding our parks as a hook to begging for more money for his legal funds for the lawsuit against the BRT than a sincere expounding of taxation theory but whatever. It definitely suggests that housing values are more direct reflection of the perceived quality of life to living in a city or town than the sum total of wages or business activity is.
I'd suggest on that much he's right and that its actually a progressive viewpoint. Delaware has a tax policy that invites the finance corporations to all locate their titular offices in Wilmington but it has not necessarily been much better than Philly in taking care of quality of life. The residential parts of its downtown suffer from violence, crummy schools, aabdonment - despite some noticable Victorian and Federal architecture and an economic center thats going like gangbusters. Still everyone leaves at 5:00 pm and drives away. Thats not a "rounded" measure of a successful city.
To be honest I think Brett is actually just rhetorically reaching to tie the Fairmount Park study (the topical bit of news) into yet another pitch for cash but do you really disagree that the desirability of living in Philadelphia, its "percieved quality of life", is not a better, more humane index for how well we are doing as a city than simply the number financial transactions taking place in city limits? I don't.
To be specific I think real estate taxation is one of the differences between "libertarians" and "conservatives" and Brett's ideology leans towards a very slightly libertarian flavored Bloomsbergian centerism as opposed to "conservatism". Conservatives in my experience are quite happy with using school districts and real estate taxes for economic stratification. They are quite direct in saying so. Poor people in their view are poor because of their "laziness" or some innate deficit - sometimes its race, sometimes its the "breakdown of the family" caused by "poor morals". "Good people" should be allowed to use property taxes to buy themselves away from "bad" poor people. I've seen it written in just those words hundreds of times. Historical injustices, the accidents of birth don't play into the chances people have in life - poor people are poor from their moral failings and aid to the poor is just rewarding "bad behaviour" The libertarian viewpoint on the other hand goes in various degrees of less taxes, less government but will have a less moralistic viewpoint of taxation.
When Brett argues fervently in favor of rationalizing the tax assessments but only says "if we are to tax real estate, we must do it correctly and fairly" I think he reveals in fact an ambivalence toward real estate taxation. He can prove that the assessments are unfair (and I thinks he's right - they are and especially unfair to poor and working class folks specifically actually). Whether property taxes should be the whole solution, thats left open to debate.
So anyway I don't think its wrong to assert that a humanistic approach to government views a city that attracts people to live in it is too far off. The percieved level of crime, good schools, culture, the natural environment, a place that is considered a healthy place to live and raise your kids, a sense that a place is somewhere where anyone can succeed regardless of who their parents were or what their ethnic background or last name is - those are values I think progressives should get behind. They also are what attract people to a city. So yes if overall more people want to live in Philly than want to move away we are doing something right. If thats what Mandell is arguing on at least that, I enthusiastically agree. I sometimes think that there are some folks who think that because they disagree with him on the BPT that its ipso facto necessary to disagree with him on everything.
Unfortunately we still aren't doing that well overall in terms of convincing people that Philadlephia is a good place to live.
Better than we did in the 1980's but not that good considering that while city population dropped around 4.5% percent between the 1990 and 2000 census the population in the metro region grew by 24.5%. Our surrounding counties are doing something that wins the "vote with their feet" ballot by considerable numbers.
Again if your argument is that the BPT debate can only be settled by more information on who pays and who doesn't and whether mom and pops are bearing a brunt while large corporations get a pass, I agree. More information makes for more coherent arguments. I just don't follow the argument that if you disagree with someone on Point A that you necessarily have be at odds with them on Point B. I like population loss/growth as a rough index of "quality of life" and I think its perfectly progressive to say that on that front Philadelphia has made improvements but needs to do much better.
Also if someone says they want so-called "value-neutral" reassessments isn't it kind of putting words in their mouth to say they are pushing a pro-real estate taxes agenda? If their argument goes make the assessments fair (with protections that vary on who you are talking to) but lower the millage rates - and Mandell and Co spell that out on all their various materials, aren't you sort of obliged to back up your argument with specific examples before you start alleging a "unadvertised agenda"?
Brett Mandel wants higher real estate taxes
There's really no question about that for anyone who has observed the 5 year history of the movement to abolish or sharply curb the BPT. Mandel has frequently observed such things as real estate, unlike people, can't move, so taxing it doesn't influence the locational decisions of people and businesses. Also that it's a good thing for valuations (and thus tax payments) to go up because that is evidence of prosperity and of increasing wealth. He has stated in testimony to City Council, that I witnessed, that increasing tax burdens on the elderly poor are not a problem because they can obtain reverse mortgages. And the Tax Reform Commission report, which he frequently touts as the bible of tax reform, states clearly that the only way BPT repeal can work is if real estate valuations increase sharply. Indeed, the Commission's only real concern about BPT repeal was that it wasn't sure City Council would have the stomach to do the "right" thing, i.e., let valuations rise and reap the windfall benefit of higher r.e. tax revenues.
No, Brett is a tax shifter, not a tax cutter.
And thats bad why?
Wage taxes let folks who earn non-wage based income (dividends and such) off the hook. The Cohen tax credit provides some relief for low wage earners but its an awkward attempt to insert progressivity into something that isn't actually an income tax. When it finally kicks in we still have to see how many folks actually bother to take advatage of it. With the wage tax the original collection device is cruelly efficient but the participation in the tax credit likely somewhat less so.
There are down sides to property taxes as well to be certain - it taxes unrealized wealth for some elderly folks on a fixed income if their aren't caps in place but caps and deferments can be put in place. Rising real estate taxes are sometimes a real concern in the suburbs with theri much higher tax rates but I have never once personally heard of a single person whose home has been endangered in the city of Phila from rising property taxes. Walking around my house onthe other hand I can see literally hundreds of abdonned rental properties and commercial properties that real estate speculators have let sit for decades with uncollected property taxes, getting a free ride and putting a serious strain on city services in terms of urban blight. I have also met a number of elderly folks who, once that blight reaches a certain point, been forced from their homes by NTI redevelopment projects - getting crap deals from the RDA in eminent domain - when the amount of unenforced abandoned properties owned by speculators and negligent heirs in their neighborhood reached a point of no return.
Why in the face of overwhelming physical evidence (thousands of abandonned properties not generating property taxes)is it necessarily anti-progressive to pursue a partial, remedied shift to property taxes? For every dollar of property taxes that goes into the general revenue, we should remember there's an extra dollar going to our schools and I would think that schools play a major factor in chronic unemployment, crime and our cities continuing loss of population.
Surely this is an instance just like with the BPT where facts not assumptions are called for.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
TRC study
My impression is that the Tax Reform Commission argument is that reducing business taxes would make business property more valuable, reducing the wage tax would make all property more valuable, etc., so that some of the revenue lost could be recaptured. I think there's a distinction to be made between opposition to artificially holding property values down and consciously increasing real property tax rates as strategies to raise revenue.
That's a distinction without a difference
to someone who gets a tax bill that's higher for any reason. If you can't pay, you can't pay.
I disagree
One says that if your property's worth more, you pay more. The other says that even if your property's value is the same, you pay more.
And not only can most people pay, but most of the undervalued properties that we're talking about are worth hundreds of thousands if not millions of dollars. Anyone sitting on the kind of wealth increases that most of the property owners in Center City and adjoining neighborhoods have seen merit much less of my sympathy than the renters who've already been priced out of these neighborhoods, the schools that go underfunded in part because of the undervalue, or the property owners in neighborhoods that haven't boomed who are paying more on the dollar.
This is ridiculous.
Of course those who can pay should pay
but much of the wealth you're talking about, both corporately and individually owned, has been tax abated. It's everyone else who will pay increased property taxes. School funding should simply be decoupled from the property tax precisely because it so disables coherent debate on the unfairness of that tax as applied to primary residences. The property tax is fundamentally regressive in a town that is as poor as this one is. Yes, there are pockets of wealth, but that wealth can be taxed without imposing hardship on thousands of tenants, not to mention homeowners, who have not yet been priced out of their homes but may be. Property taxes, particularly on primary residences, should be low, although other taxes on wealth (such as estates) are fine. But the major sources of revenue for government should be graduated income taxes on businesses and individuals.
The effort to "fix" the property tax in this town, is primarily a tool for "fixing" the business tax by eliminating it as quickly as possible.
How much is "much"
Your "much" is awful vague. If we were willing to agree to a fairly loose definition of "very gentrified" neighborhoods - lets say areas where the median price per housing unit per block had increased by more than 400% over the last 10 years - that properties qualifying for the 10-year tax abatement would represent less than 20% of those properties. Am I shooting from the hip with that estimate? Absolutely. But I'd be wiling to put a gentleman's bet of a beer on it.
MrLuigi, my cat, actually only types half as badly as I do.
First, I was just correcting the record
regarding Brett Mandel's positions. And I'd like, while on that subject, to again point out the strange disconnect between his insistence that the property tax be levied "equitably" with his cavalier "I don't care who cheats" on the BPT position. Perhaps he'll come on this blog and explain.
But on the larger issue of whether a shift to the property tax is warranted; it depends. If the tax is truly made progressive, it might be OK as a method of providing relief to small businesses unable to cope with the BPT. But in order to give tax cuts to Comcast, Walmart and Sunoco? No. I'm not interested in raising anyone else's taxes for that. And I don't know that high real estate taxes are a cure for blight. In fact this is the first I've heard of the notion, other than from proponents of a land tax. And that's an idea that has never taken off in Philly because it's been impossible to figure out the real winners and losers.
You might be right that not too many people complain of real estate taxes in Philly. But that doesn't mean that they can't be raised to a killing level.
So, bottom line, I agree with you; facts are needed. And that takes us back to Jonathan Stein's original point, and your agreement with it, that it's time we found out who the BPT deadbeats are in Philadelphia.
"Facts are needed"
Agreed. But statements like this aren't even remotely facts.
I would argue that this kind of statement comes from a wrongheaded conflating your disagreement with Mr. Mandell over who you suspect currently skates on the high end of the BPT with a moral imperitive to oppose any cause he happens to pick up along the way. Sometimes an effort to "fix" an obviously deeply flawed and inaccurate system for collecting approximately 40% of the budget going to our schools in Philly is just that - an effort to to to fix an obviously deeply flawed and inaccurate system. I would submit you aren't doing our schools any favors based in part on a knee-jerk response to the camp bringing up the issue, rather than the substance of the issue itself.
To me statements like that start to sound like putting personal enmity over a willingness to actually investigate the concrete facts of part of why funding for our schools suffer. To me it sometimes sounds like you willing to let an enmity based on a injustice you perceive and want facts on in one portion of local taxation to justify a sometimes deliberate tonedeafness on another facet of our local taxation that involves an even larger chunk the total local revenue pie. It drives me crazy, to be honest.
I would think that if for no other reason that because the assessment process is so palpably, obviously wrong, you might reconsider just because its obviousness hurts your credibility with a wider audience on the BPT. A lot more Philadelphians look at the arbitrary differences in the appraised values listed on the BRT website for sometimes identical houses on their block and laugh out loud I would argue than understand the finer points of your argument on the BPT issue.
Facts are facts are facts and "I don't care who cheats" to me sounds just as bad when applied to hundreds of neighborhood destroying real-estate speculators sitting on tens of thousands of boarded up buildings and breeding blight as it does when applied to Sunoco's or Comcast's local corporate profits. A whole lot of little property tax injustices adds up and do big damage over time and I don't see whats accomplished by not applying every bit as much scrutiny to them as to the BPT.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Here are some facts about what I'm saying
First:
Hi-grade, quality education in Philadelphia must be paid for. Indeed, achieving a "world class" education system in Philadelphia may be the highest public priority there is in this town. But high property taxes is not the best vehicle for getting there. Indeed, as we see in school districts with high property taxes all around the Commonwealth, that may be the worst way to do it since everyone seems to hate property taxes once you cross City Line Avenue.
Assessments should be equalized. But that is not the first priority for property tax reform, and indeed, property tax reform must be done in the context of overall tax reform. To have that tax reformed leaving thousands of people vulnerable to losing their homes -- or even if it's hundreds -- is to cure the patient of one disease while infecting him/her with another. ALL taxes in Philly should be graduated, and apportioned so that businesses as well as individuals pay their fair share.
That's all that I'm saying and it has nothing to do with my personal viewpoint of Brett Mandel or anyone else.
OK
There's not a word in this I would take issue with other than to point out that state law by many peoples estimation requires an update of our assessment techniques, which is why independent of Mandell and Co. the BRT has been pushing for (and been delayed) full-market values assessments for what 7 years now?
So I emphatically agree that the impact of accurate assessments has to happen in the context of a full and balanced look at taxation overall in Philadelphia - but thats why I think it behooves us to start that more balanced discussion about how to incorporate accurate assessments into the overall balance more fairly now, rather than act in reaction and plan to just push it back for another 7 years.
More than that, I might suggest that putting too much energy into "no reassessments because we can't trust Philadelphia Forward" and not enough energy into how to mediate and make reassessments fairer is actually a recipe to end up with exactly the version of reassessments we would like the least.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
I disagree (again)
Everyone grumbles about property taxes across City Line Avenue because it's the primary tax that they pay (unless they work in the City of Philadelphia). But it doesn't stop people from buying up houses or opening businesses in Lower Merion, or from basking in their great schools, quality services, and high property values. I would take that trade-off any day of the week, as would most homeowners and parents in Philadelphia. Again, as we've said many times, the major trouble with taxation is the feeling that one pays too much and receives too little in return, to the point that the gap between taxation and services alone becomes a serious hurdle to residence in the city.
Municipalities draw most of their income from property taxes because for the most part, the services they provide directly affect the physical property within city limits rather than individual residents. Police, fire, water, streets, parks, etc. And schools draw their income from property taxes because at present you need to be a resident of a municipality in order to send your child to its schools, to vote for the school board, millages, etc. I can't live in Chester or Camden, work and pay the wage tax in Philadelphia, and send my son or daughter to Masterman or Central for free.
It's a good thing that Philadelphia taxes its businesses on both their properties and their profits (and, I would argue, gross receipts). It is good that Philadelphia taxes the wages of everyone who works in the city. This is because Philadelphia by necessity provides a great many more services than a typical municipality, and businesses and wage earners, including those without physical residence in the city, take advantage of all of those services.
The question is whether the existing levels of each of those taxes provide a disincentive to live, work, own property, or operate a business in the city, and whether the current apportioning of funds acts to the detriment of particular services (such as schools) which are dependent upon a particular stream of revenue.
The other question is whether each of those taxes' incidence is justly distributed across the public. I would support a blanket credit for the wage tax (en lieu of across the board cuts) to help lower-income earners (myself included!) and likewise for property taxes and gross receipts. I strongly support the property tax equalization because I think the current set of valuations unfairly benefits some property owners (primarily wealthy ones) over others. And I think it's time to scale back, restructure or eliminate the property tax abatements, as Nutter proposed in the campaign.
But in general, I think it would be good for the city to be less dependent upon wage and business tax income and for the corresponding share of property taxes to rise, closer to the percentage that it had been at in 1992. (Despite steady wage and business tax cuts, both taxes make up a greater share of the city's revenue than ever.) And I would push as much of this revenue as possible to the schools, and use that commitment to get similar increases from the state.
You raise many interesting points
I guess I was giving Stan the benefit of the doubt that his version of "high" property taxes meant the same as mine - i.e. not as high as our surrounding suburbs, particularly since we have the wage tax as well. I was assuming he was leaving space for reasonable people to diverge within reasonable limits and suggest a balance of taxation and services that involved leaning a little more on real estate taxation (or at least more aggressive collection efforts against deadbeat commercial property owners) without labeling us all members of the Club For Growth.;-)
I thought I detected a note of an olive branch in other words.
I do think we all agree that its important to balance real estate taxes against other forms of taxation versus the overall perception of "quality of life". Especially including schools and city services in order to retain population. So thats a starting point.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Yes, we'd all like to be like Merion, but Chester, Norristown?
All suburbs aren't created equal you know, and reliance on the property tax has hardly made all of Philadelphia's suburbs a taste of heaven. All the property taxes in the world won't overcome blight in the face of ingrained poverty. And ingrained poverty is what we have much too much of in Philadelphia.
Your rationale for why property taxes make sense doesn't, frankly, make sense. Properties may get protection from local services, but the properties don't pay the taxes themselves; it's the fact that people and businesses get benefits from that protection that is the reason taxes are paid at all. Every service you mentioned is a high priority because people and businesses want those services for themselves and/or for other members of the community.
A wage tax credit against the property tax is a very interesting idea that may have merit within the confines of the current tax mix. However many of those who need protection against hugely escalating real estate taxes aren't wage earners. And the population of the City is rapidly aging. That means more and more of our residents are relying on fixed, non-wage income.
A far more fundamental shift toward progressive taxation is needed. That means we should greatly reduce our reliance on a property tax that is inherently resistant to progressive restructuring. Obviously as long as that tax is a major funder for the school system, any shift away is problemmatic. But if business taxes are maintained at a reasonable level, the City can increase its direct subsidies to the School District in lieu of whatever increases it might get from increased property taxes. Direct subsidies have also been matched by Harrisburg in the past and hopefully would be again.
In short, revaluation is a good idea in theory, but until and unless it is done in conjunction with a plan to protect the vulnerable, and to stabilize the proportion of taxes that the property tax produces, I am against it.
Ahem
Major new Inky article on Philly's property tax assessments.
The whole article is worth a read as it explains the whole fractional method of calculation which introduces yet another layer of confusion to the mess, as well as having quotes from Mayor Nutter suggesting the system should have changed "yesterday" and from Councilman Frank DiCicco who oposses quick movement on changes to the system - which isn't a surprising stance since the article points that some of the residents of parts of the 2nd ward are some of the biggest beneficiaries of the of the current system in comparison to residents in humbler parts of town generally - albeit with the dramatic exception of the unfortunate Lisa Parsley above.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
By her address, Lisa Parsley
By her address, Lisa Parsley lives in Anna Verna's district. If the 2nd had developed and been as assessed as unevenly as her neighborhood, or if the 2nd stretched farther north into Frankford, DiCicco would feel differently.
Your right
I was so anxious to post the link, I skimmed over what hundred block of St. Albans she lived on. Mrs. Parsley lives in "Grad Hospital" 30th Ward as opposed to QV/BV 2nd ward. My mistake. The spread of Center City housing values south of South obviously has a head start in DiCicco's district (1rst councilmatic - east of Broad) but at this point I'm willing to bet South to Washington west of Broad is not that far behind at the rate its been catching up in the last 4 or 5 years. The overall point is the same, fringes of Center City more recently "gentrified" getting a deal in low assessments, bluecollar and less "hot" neighborhoods getting over assessed with sometimes random exceptions (like Mrs. Parsley).
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
totally agree
what's unique about the second and how it's developed (ie more gradually/evenly) is that its residents have more universally benefitted from the property tax regime. Virtually every other district (and even many wards) are more like Ms Parsley's neighborhood -- unevenly developed, unevenly assessed -- than Bella Vista.
pz: I used to live around the corner (although I don't know any of the people involved) and the 2300 block of St Albans is fabulous.