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- My first trip to the public library
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- What if half of Philadelphia didn't have roads?
- You know, let's not even worry about the City Commissioners office messing up voter registration processing
- Bold ideas to fix the budget
- Mayor Nutter's Town Hall Meeting Schedule
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- Size of Philadelphia government?
Tax skeptics rant
Submitted by Aardhart on Sat, 02/24/2007 - 2:17pm.
I posted the following is another thread, and I'm kinda proud of it:
A lot of people here reject any causation between excessive taxes and displaced growth. They don't believe that if taxes make running a business in Philadelphia significantly more expensive than running a business outside Philadelphia, that businesses will locate outside of Philadelphia. Economists, controlling for other factors, have shown that "the wage tax [which increased from 2% to almost 5% from 1969 to 1992] can directly explain the loss of roughly 100,000 jobs from Philadelphia over the period 1969 to 1985." Yet, some people here deny that excessive taxes played a role and think that schools and crime drove all these jobs out of the city.
Trying to discuss the need to lower taxes with people that deny that excessive taxes displace growth is like trying to discuss the need to lower carbon emissions with people that deny global warming. It's futile. Those of us that believe in some causal link between taxes and growth are dismissed as "supply-siders" or slandered as a Republican.
People, there is a causal link between taxes and growth. If you institute a 15% BPT tax for five years, there will be fewer businesses in five years than there would have been if the BPT was 3% and all other factors were the same. Non-tax factors still influence growth, but tax plays a role in growth.
People can reasonably disagree on how big a role tax plays, but it is unreasonable to continue to deny some causation. It is difficult to prove the role tax plays because you can't try it two different ways at the same time; we can't live the next five years in Philadelphia twice, once with a 15% BPT and once with a 3% BPT. Economists (which I am not one) analyze data and try to isolate variables and prove the role tax plays in growth and have theories and dispute each other's theories and such, but I don't think you can deny the simple premise of supply and demand. You also can't deny the mountain of anecdotal evidence of all the businesses who actually left Philadelphia because of taxes.
In addition to denial, the idea that taxes influence growth is frequently mischaracterized. People demand that tax cuts promise to "pay for themselves" immediately (while denying their ability to). People frequently equate cutting tax rates with cutting revenue. They are not the same thing. Tax cuts do not necessarily "blow a hole in the budget." Wage tax and BPT tax rates have been decreased every year for the past eleven. In every year except two, tax revenue increased. Do you see that? Tax rates were reduced, and REVENUE INCREASED. I am pointing out a fact from history. I am not claiming that this proves causation; I am claiming that there is NOT necessarily a need to trade municipal services for a tax reduction. People mischaracterize tax cuts as an either/or substitute for working directly to improve other problems. This is just not a valid way of looking at things. Every candidate favors spending on direct social service programs. Lower taxes will not fix schools. Lower taxes will not solve the crime problem. However, a healthy economy that brings businesses in will bring jobs and taxes, which will contribute to long-term improvement of poverty, education, crime, and almost every other issue. (Maybe Reagan did view tax reduction as an either/or substitute, but he's dead.)
I will not propose the proper tax rates or balance or policy here, because I don't know it. Yes, tax rate reductions can be accompanied by decreased tax revenue; that has happened twice in the last eleven years. Yes, lower tax rates on the same amount means lower tax revenue. Yes, lowering taxes past a certain point will give no benefit. Yes, other factors influence growth. We can discuss this and discuss which candidate proposes the best policies and is best suited to implementing them and improving Philadelphia. But we can't work together if we aren't speaking the same language and bickering over whether someone is one of those supply-siders.
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I support Michael Nutter for Mayor.
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Cross-posting, you're protesting too much, and also too little
I don't think there's a debate as to whether taxes affect location decisions, just how much, and how one deals with the uncertainty. So you're protesting too much. But some of us do think candidates running for office can't just sluff off the uncertainty and propose cutting without appropriate safeguards. And since you don't seem to want to hold candidates to that standard but instead think it's enough to just trust one of them, you're protesting too little.
And about everything else that could be said about this topic has been said. For me, it's time to give it a rest.
Why do I have to protest at all?
I'm exacerbated that I have to protest at all. Whether there is any causation between taxes and growth is debated here, and it is debated here far too frequently and far too much. The notion that tax cuts can cause growth being derided as "faith based economics" and the "correlation doesn't equal causation" battle cry does seem to undermine your acknowledgment of a causal link, but I appreciate your acknowledgment.
Support of any candidate of any office involves a level of trust. That trust is in whether the candidate will pursue noble goals and make wise decisions. Acknowledging that there is trust is not "protesting too little," it's honesty. Seeing as you seem to support Fattah, I don't understand how you "sluff off the uncertainty" that his campaign promises bring. He has released many policy papers, promising a lot of expensive new programs, eliminating the BPT (sorta, but reducing taxes nonetheless), and much of it relies on an unrealistic plan to get $3 billion for the airport. However, explanation of how he can deliver what he promises can take place elsewhere. I'm not the only one questioning it, but I would like to see you hold Fattah to "that standard" (in another thread).
If we can stop arguing about whether there is a causal link between reduce taxes and promoting growth, I am happy.
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I support Michael Nutter for Mayor.
Ay
Yes, there is a link between taxes and where businesses locate. However, I do not believe (and, studies bear me out) that they are not nearly number 1. So, given that I disagree with you, and, you think you are right and confident it will work out, then what is the problem with some sort of trigger?
I mean, bottom line is Nutter needs more support not less, so, shouldnt he be working to build consensus?
Consensus Building
Dan - how's Nutter not building consensus around this issue? Not trying to be dense, I just don't understand what people are waiting to hear from him or his campaign on this particular issue.
I asked some questions on the "Nutter Butter" thread and didn't get a response, so pardon me for asking again. Councilman Goode legislated a fantastic program a few years ago that partnered local firms with CDC; for 10 years, the first $100,000 of BPT taxes that would have been paid to the City are diverted to these CDCs instead. I think that there are a least 10 CDC's that benefit from this excellent program. That means there's a revenue loss of $1 million annually to the City, $10 million overall. Why weren't those folks so concerned about BPT tax reductions calling for a "fail safe" for this program? Similarly, why weren't they calling for a fail safe for Councilman Cohen's wage tax exemption program for low income residents (which I support). I think that the answer is, this isn't a standard that's usually applied when evaluating legislative initiatives.
There is a big difference between 1 million and 400 million
is the first answer. The second is that those who support BPT cuts promise that they will lead to new businesses into the city and tax revenues that will make up for the BPT reductions. That is to say, the proponents of cutting the BPT already are, in a sense, promising revenue neutrality. But that promise is based on a hypotheses about the effects of business tax reduction that lots of people find, to say the least, overstated. (And, in addition, the increased tax revenues are supposed to come from increased property values which are not an unmixed blessing if we don't institute protections for workign people and the poor.)
That's why I believe we need to tax smarter not tax less. We need to cut the BPT--I would actually do it more quickly than Nutter has proposed, to maximize the impact of tax reductions. But we need substitute revenues from smart taxes until we see whether BPT reductions--and the other things we should be doing like making it easier to open new businesse and investing in commercial corridors--actually lead to economic growth in the city.
I Get It
Marc - thanks for the clear articulation, although I'm not sure we need to only tax smarter, we've still got a tremendous per capita tax burden in our City. I suppose we need to broaden the scope and not only talk about "taxes" as part of the revenue stream but also look for other ways to grow the pie without putting too much more of a burden on Philadelphia taxpayers.
I do agree with you that there's a big difference between $1 million and $400 million, but the $400 million is only if you wipe out the entire BPT. The candidate for Mayor that I like isn't proposing that.
Also, to Dan's question below, I suppose the "trigger" concept is fine. The point that I was trying to obliquely make (sorry if it was tedious) is that it's very selective to apply this kind of budgetary hawkishness to one particular spending priority (in this case a tax cut) and not to others. I'd like to see this kind of rigor applied to all budgetary line-items. In the programmatic realm, the concept is "sunsetting" whereby programs that have been in effect for a while must be examined for efficacy and either reauthorized or terminated.
A horse named Trigger
Taxes don't have to the top factor for tax cuts to work, as long as they are a major factor. I believe that Philadelphia's excessive taxes are a major factor hurting growth. The benefit of tax cuts are that they are a lot simpler to fix than the other major factors. Our public schools definitely need to be improved, but no one knows how to fix them.
I'm not sure what exactly you disagree with me about. I shall assume you disagree that the BPT should be reduced. I explained in your Nutter Butter thread why I oppose a reversal failsafe. I followed up here that I was kinda agnostic about delay or reapproval triggers. It would depend on the particular trigger. They will mostly be sought by people who oppose a cut, and could be crafted to frustrate and reverse the cut or to get another chance to do so. I don't feel strongly on the issue in the abstract, but view triggers mostly as procedural tinkering by opponents of a tax cut.
EDIT: Stan, Friedman, please use the reply function so people can tell who you are replying to and the posts show in a logical order.
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I support Michael Nutter for Mayor.
Nah, I still don't get
Nah, I still don't get it.
Are triggers and the like procedural tinkering, etc by skeptics of the benefits we will get by slashing the BPT? Of course they are! But that is the point. You are confident that it will work, so, I still don't get what the problem is. If it works, then that procedural tinkering will never mean anything, anyway, right?
Again, the supply side- BPT debates have gone on here for a long time, and I am not interested in going back over them. (I know you are new-ish.) Lets just say that given the risk-reward potential, I don't think slashing that tax does a whole lot, especially not given the risk to the City.
So, again, if you are confident in the effect it will have (hence with no need to worry about hypothetical tinkering), and you need to figure out how to gain votes for Nutter (who is certainly losing a lot of progressive voters to, say, Fattah), then I am mystified by the reaction to my original question.
The Dangers of Uncertainty
Dan, the problem I see with an automatic trigger -- assuming this means an automatic rollback in the BPT if certain revenue targets aren't hit -- is that it creates tax instability. Businesses (and workers too) want to be able to project with some certainty what their tax burden will be in both the near and long-term future. If companies have to deal with too much uncertainty in their projections, they'll go elsewhere. Especially if they're the sort of businesses for whom a reduction in the BPT is going to change their mind about investing in Philadelphia. I think this is the reason why Nutter has pushed for "guaranteed" tax cuts for both wages and business revenue. It's definitely why the board of revenue posts what the tax rates will be from now until the next decade.
Businesses like uncertainty even less than high taxes. And no business worth their salt would ever want to peg their profits to the city of Philadelphia having their shit together. If anything goes wrong -- if the casinos aren't profitable, if the airport doesn't bring in the money it should, if there's a business downturn -- they would have to take the hit. Instead, they'll take a pass.
You have more traction with your second point in the other forum, which is that Nutter (or anyone proposing a substantial cut in the BPT) should propose a way to make up the revenue somewhere else. Fattah wants to raise taxes on gross receipts, perhaps coupled with some deeper restructuring (it's not clear yet exactly what he wants to do.) The natural move for Nutter would be some targeted increase in the property tax. Since property taxes tend to be variable anyways, they can be adjusted year-to-year as needed to balance the budget without producing anything like the uncertainty caused by a potential increase in business taxes.
My bet is that the reason Nutter is holding off on proposing an increase in the property tax is the same reason Fattah is holding off on setting a rate for gross receipts. Nobody wants to talk tax increase early in an election -- everybody wants to talk tax cuts. Fattah thought he could get some support from green-minded Dems by talking up a congestion tax, and he got drilled. I don't think anyone else will talk new taxes at all until after the primary.
The tax reform commission recommended uncoupling residential and commercial taxes and pegging property tax rates to the projected annual budget (not as they currently are, a function of assessment alone). This would bring us in line with standard municipal practices virtually everywhere but Philadelphia. And it is what I suspect Nutter would do to balance the budget. He ought to, anyways.
Note that at no time, to the best of my knowledge, has Nutter or any other candidate suggested or promised that a reduction in the total business tax burden would magically pay for itself. This is the supply-side budget logic, and it's always been proven wrong.
A reduction in the BPT has almost always been treated by its proponents as a reduction in the overall revenue stream (albeit a productive one) which would have to be made up somewhere else. The only debate has been whether it would be Total Revenue Disaster, with companies all taking out their extra cash in bags, or a smaller hit offset by the increase in total profit made and business done elsewhere in the city -- which, as many people have pointed out, has been steadily increasing anyways despite reduction in taxes. This doesn't mean that lower taxes caused revenue increase. But it suggests that as business prospects in the city improve, we can continue to reduce our taxation rate without creating a budget crisis.
Supporting Michael Nutter for Mayor.
Procedure can defeat substance every time
Procedure can defeat substance every time.
Short Schrift makes a good point about uncertainty that I'm not sure I made in the Nutter Butter thread.
You wrote several times that I am "confident that it will work." I'm not sure if it misstates what I have posted, but it is very vague. I believe the following: I favor a reduction in the BPT. I believe that excessive taxes greatly contributed (with other factors) to a 50-year trend of Philadelphia losing jobs and population, which contributed to many other problems including raising the taxes further. I think it is stupid not to try to correct excessive taxes along with all the other problems facing Philadelphia. I think not trying to correct it and hoping that a 50-year trend reverses without addressing a major causal factor is "too risky, a bad gamble, and tossing the dice." I think reducing the BPT will lead to more growth than would occur if all other factors remained the same, and is one of the most direct ways to promote growth. I think opponents of reducing the BPT ignore (not understate, but flat out ignore) the effect that it could have on growth and equate reducing tax rates with reducing tax revenue. I believe that growth can cause revenue to increase as tax rates decrease; this was proven in recent years.
I do not believe the following: I do not believe that all tax cuts are good. (I agreed with Warren Buffet and Bill Gates's dad that the inheritance tax should not have been reduced. I think G.W.Bush's tax cuts were bad.) I do not think all tax cuts "pay for themselves." I do not think cutting the BPT will guarantee that revenue will increase (but I think growth must be addressed in any discussion of tax revenue). I do not think that reducing tax rates is the same thing as cutting money from the budget, and it irritates me greatly when this is expressed and believes that it prevents intelligent conversation.
I think Marc Stier posted a very intelligently about the BPT. I don't know if he's right or wrong, but his analysis seems balanced. His second reason for reducing the BPT is: "While business tax reductions will help the economy in the long term, I think it will take awhile." If this is true, then there is a very real danger that BPT reductions will be repealed even though they are effective and helping business growth. I should have listed this a another reason to oppose failsafes/triggers.
I have no idea what your original question is. Are you talking a failsafe that reverses a reduction, delays a reduction, or what?
EDIT: My revised reasons for opposing a failsafe:
1. Cutting the BPT is a good thing and should take effect. (Oppose procedural obsticles.)
2. The BPT is only one factor in determining whatever factor would trigger the fail safe. A national recession should not trigger a fail safe if the local economy is better than it would have been with a higher BPT.
3. Fail safe or not, political impossibility or not, future city councils can adjust taxes as necessary. They were able to get taxes this high some how.
4. The city would be better off looking to other sources, such as raising real estate taxes, than it would be raising the BPT again. A fail safe makes it too easy not to do the best thing for the city. (Making raising the BPT into the default choice may prevent City Council from seeking other better options.)
5. Stan wants a fail safe, so it must be bad.
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6. "While business tax reductions will help the economy in the long term, I think it will take awhile."
7. The risk that a failsafe is crafted poorly, measuring the wrong factors or on too short a timeline.
8. Uncertainty is bad for business. A failsafe provision could mitigate the benefit of a BPT reduction.
9. Failsafes/triggers not only require that the BPT be beneficial, but that someone accurately predicts how beneficial it would be. They measure forecasting, not effectiveness.
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I support Michael Nutter for Mayor.
Nutter's not built a consensus around the issue
and if you don't recognize that from this dialogue, then it's hard to know what you've been reading. As to the Goode program, that is totally apples and oranges. His program cost $1 million a year, BPT repeal would cost huge multiples of that, growing every year for 15 years. I did comment on the Cohen bill, and I believe you replied. So, although I think we're all groggy from this conversation, I'm not sure what you're asking here that hasn't been answered, whether or not to your liking.
Not Consensus Here, But...
Nutter definitely hasn't built a consensus in this forum on this issue, but given that all of the mayoral candidates are supporting a repeal of gross receipts, two out of the five candidates (Knox and Brady) seem to be even more hawkish in moving back the BPT than Nutter in their platforms, and Fattah is arguing for a total restructuring (yet to be determined) of business revenues, he does not appear at all to be as extreme as he's painted to be here. In fact, the other candidates seem to have keyed in to dissatisfaction with the BPT as an issue that plays very well with the electorate, since they've all made it part of their platforms.
(An aside -- I would love a really good discussion of Dwight Evans's economic and revenue proposals. We have beaten Fattah and Nutter to death.)
Also, since there were a majority of council votes in 2005 for a phased repeal of the entire BPT, Nutter's present position (which, again, is phased elimination of gross receipts, and reduction of net profits over a longer period of time to the level of the wage tax, NOT BRT repeal) looks like a strong consensus position in city council, which is where the legislation will have to happen anyways.
So even if Nutter is not where many progressives would like him to be on this issue -- at least in this forum, and as other people have said, we seem to be pretty split on exactly what to do -- he is not on some weirdo in-the-pocket-of-business fringe of the Philadelphia Democratic party. Right now, he is right up the middle.
Supporting Michael Nutter for Mayor.
Not Just here that he has faied to buid consensus
But also, a lot of the progressive unions and groups that have long fought the good fight. Such as:
Thanks For the List
I think this is sufficiently covered by my statement that:
What exactly is this list? Organizations opposed to reductions in the BPT? Orgs opposed to reductions in the net profits portion? Orgs endorsing someone other than Michael Nutter?
Supporting Michael Nutter for Mayor.
Endorsers of One
Endorsers of One Philadelphia, who largely stood against Nutter's BPT plans.
My point is that is not just in this forum- it is with groups all over the City who have little connection to YPP.
Another List: Tax Reform Commission Supporters
10,000 Friends of Pennsylvania
21st Century Review Forum (Mayor Street’s Transition Committee)
African-American Chamber of Commerce of Pennsylvania, New Jersey & Delaware
Alliance for a Sustainable Future
American Street Erie Avenue Business Association
Bella Vista United Civic Association
Boathouse Sports
Center City Residents’ Association
Center City Owners Association
Center City Proprietors Association
Center for the Study of Economics
City Controller Jonathan A. Saidel
Common Ground-USA
Cruz Inc. General Contractors
Friends of the Earth
Get America Working
Greater Philadelphia Association of Realtors
Greater Philadelphia Chamber of Commerce
Greater Philadelphia Chamber of Commerce CEO Council for Growth
Greater Philadelphia Hotel Association
Greater Philadelphia Urban Affairs Coalition
Grow Philadelphia
Henry George School of Social Science
Homeowners Association of Philadelphia
Hunting Park-Germantown Business Association
League of Women Voters of Philadelphia
Mayfair Community Development Corporation
Midlantic Business Alliance
National Association of Realtors
National Congress for Puerto Rican Rights
National Organization For Women (NOW), Philadelphia Chapter
National Taxpayers Union
Nationalities Service Center
North 22nd Street Merchants Association
Greater Northeast Philadelphia Chamber of Commerce
Pennsylvania Economy League
Pennsylvania Fair Tax Coalition
Pennsylvania Institute of Certified Public Accountants
Pennsylvania Intergovernmental Cooperation Authority
Philadelphia Bar Association
Port Richmond Industrial Development Enterprise
Project H.O.M.E
Society Created to Reduce Urban Blight (SCRUB)
Society Hill Civic Association
Urban Leadership Council, Inc.
Young Involved Philadelphia
One Philadelphia's Vision Statement
But as far as I can tell, One Philadelphia doesn't have an explicit position on cuts to the BPT.
This is from the vision statement:
In other words, endorsers of this statement could in principal support cuts to the BPT (or to the wage tax, or anything else) as long as "any tax cuts or elimination of certain taxes must be offset with revenue from other sources or taxes to ensure adequate revenue is raised and services are maintained."
If this principle sounds familiar, it should -- Stan Shapiro is One Philadelphia's coordinator.
Supporting Michael Nutter for Mayor.
One Philadelphia exists because of Nutter's repeal effort
That's what brought this coalition together. The vision statement is just that, a broad statement of policy. But, in terms of specific work, all we got to do for two years or so was develop emergency responses to Nutter's relentless effort to repeal the BPT without identifying that "adequate revenue is raised and services are maintained."
Consensus Conversation Continued
You did respond to the question about the Cohen Bill and now to the Goode Bill; thank you. However, I'm still confused. Your "revenue neutrality" concept isn't an absolute rule, it's only applied in certain situations? Only for tax cuts? Not for spending programs? If that's the case, I don't get the distinction. Why would you be concerned about revenue replacements for one and not the other?
I also wondered whether - in your three decades of experience with Council -legislative proposals that directed City government to spend money always identified a specific revenue source? From what I am hearing about the Goode and Cohen bills, I'm assuming that many did not.
I also wondered when Fattah, Evans, or Brady have proposed (or voted for) spending programs (or tax cuts) in Congress or the State House, did they typically identify a specific revenue replacement source? Have they all evidenced records of being responsible budgeters? Does anybody know? They all have pretty extensive public service records.
And finally, on the airport leasing plan - are you not concerned about a privatization that would likely strip 250 City workers of their jobs and might possibly put their pensions and benefits in jeopardy?
When you put 16% of the City's tax revenues at stake
that gets special scrutiny. On the airport leasing plan, I'm trying to learn more. It's only been out there a week or so. When I feel I know enough about it, I'll comment on it. Not until then.
Hyperbole Alert
Stan - not trying to take a bad tone here, but if we're talking about Nutter, his position is not to eliminate 16% of the City's revenue. That would be total BPT elimination and that's not what his position is.
But he has a record of having tried to do repeal the BPT
I understand that he says he's not for that now. But you don't get to escape your record, especially when you put out a flyer which seems to take pride in it.
Is Anybody Else Running?
LET'S TALK ABOUT SOMEBODY ELSE'S RECORD!! DO ANY OF THE OTHER CANDIDATES' HAVE RECORDS?? Stan - I cannot believe that after decades in City government, you know nothing about any of the other candidates or cannot expound on a multitude of other issues. Please, let's all talk about something else. You pick the topic.
I think people are also
I think people are also throwing around supply-side a little too much.
National economics are completely different than local economics. The theory behind lowering the BPT isn't "now that businesses make mroe money, they will hire more employees". The theory is that it will keep businesses from leaving and try to get more in the City.
On national level, most businesses are stuck in the US no matter what. They aren't just going to up and move to a new country. On the local level, it is a lot different. Busiensses easily relocate outside city limits and new businesses can choose from a myriad of locals to startup.
Lowering the BPT is NOT supply side economics. It is trying to cultivate a business friendly atmosphere in comparison to surrounding regions.