Tax Cuts

What to Make of the Fiscal Cliff Deal?

By Sharon Ward, Third and State

Tell us what you think about the Fiscal Cliff deal. Take our two-question survey.

The agreement reached by President Obama and Congress on January 1 was both historic and disappointing — and it leaves much unsettled. The urgency of the Fiscal Cliff has dissipated, but significant threats remain to federal funding for state and local services as well as refundable tax credits for low-income working families, Medicaid, Medicare and Social Security.

There is much to dislike in this agreement. It makes permanent most of the Bush era tax cuts, ensuring that income from dividends and capital gains will be taxed at a lower rate than income from work. It makes permanent the estate tax but locks in a tax rate that creates a huge windfall for the top 0.3% of households. Sequestration cuts — the automatic spending cuts that members of both parties hated and the President said would not occur — have been postponed for two months, with three-quarters of FFY 2013 cuts ($85.6 billion) and $109 billion in annual cuts after that still in law through 2022. The President’s line in the sand on raising tax rates for the top 2% of earners got pushed way back, with top rates kicking in at $400,000 for an individual and $450,000 for a couple. A low-wage earner might need 20 years to make that much.

Helping Philly Based Businesses, Creating and Retaining Philly Jobs

At the Philly for Change meet up on Wednesday I promised to post the power point on YPP regarding the business privilege tax changes proposed by Maria Q. Sanchez and myself. There were 15 co-sponsors total.

Key features are:

Large multinationals pay more as they can't legally avoid the gross receipts tax like they can the net income tax

50,000 of the 84,000 tax payers will be taken off our tax roles as a result of our exempting the first 100,000 of revenue

Philadelphia based firms benefit

See attached for detail.

Bill

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.

So a very nice gentleman from the City Solicitor's office wrote me back

A couple weeks ago, I wrote to request records that would show exactly who pays what under the Business Privilege Tax (this is why). The request made it to the right people--the Revenue Department and the City Finance Director--after some trial and error and with the help of some of you.

Last week I received an email. The City Solicitor's office is reviewing the request, and will determine what will be released.

February 13

Dear Ms. Kates,

This response is to your letter addressed to Department of Finance. You request various records relating to payments under the Business Privilege Tax.

I am writing to let you know that we have taken this matter under consideration. However, in order to adequately review and respond to your request, a legal review is necessary to determine whether and to what extent the records you are requesting are public records subject to access under the Pennsylvania Right to Know Act, 65 P.S. §§ 66.1-4.

We will keep you informed of our progress, and anticipate being able to respond to the entire request no later than 30 days from the date of this letter.

So, a couple more weeks and then the, um, real fun begins: data analysis!

Tax cuts and open government, part two: I get out my stationary and stamps

Yesterday, Dan wrote:

So, before we decide to cut business taxes or not, we should know how much every business- from big old Comcast to the smallest person just opening up shop, pays in taxes to the City each year. This may shock you, but under the previous Mayor, the Commerce Department generally refused to provide these numbers. I guess they thought it was their business only. But, with a new Mayor focused on transparency and the like, I am hoping things change.

and I got out my laptop. (And stationary, and envelopes and stamps.)

The letter was sent to the Department of Revenue, and copy given to Finance Director Rob Dubow. Notice of the request was also sent to the mayor, and Council members Frank DiCicco, Jim Kenney, Wilson Goode, and Maria Quinones Sanchez. So we'll see.

Tax Cuts, Open Government, and Reality-Based Decision Making

Dear Mayor Nutter and City Council,

We in Philadelphia are gladly watching the beginning of the Nutter administration. I, for one, am especially heartened by the sense that we are entering a period in Philadelphia where we use reality-based decision making. Think about it: Outcome-based budgeting. A 311 system and Citi-Stat. Open records and open government.

A new day, indeed.

However, this reality-based lawmaking and open government is about to get a test, and it the test comes in the form of (wait for it, wait for it, wait for it….) business tax cuts. Here is where the rubber meets the road.

As most know, the BPT is made up of two parts- receipts and profit. Councilman Goode just introduced a bill to eliminate the receipts portion of the tax. This is by far the smallest of the taxes, at just .19% 1415% (versus 6.5% for profits). The receipts part of the tax is a symbol, because people have to pay it whether they make money or not. The bill will probably pass as of today, as will a bill to significantly cut the larger tax on corporate profits. Even the most rosy scenario of tax cuts predict that at least in the short term, there will be a decrease in revenue.

Why do we cut business taxes? Most times, it is talked about as a way to grow jobs, especially in the context of small businesses. Given that general business location decisions of big corporations put emphases away from taxes and tax packages, and towards services, workforce education, etc., we can assume that tax cuts are aimed to help small businesses. And, Brett Mandel, et. al., have done an admirable job of getting small business people up in arms about the devilish BPT.

I agree that if you presented a small business with enough money to hire an additional person, to invest in new equipment, etc., then a tax cut may make sense. On the other hand, if the typical BPT payer is not getting much of a break, and the City and small businesses could desperately use a 1)more user friendly City Hall and 2) better and more services (think the surcharge that the Center City District businesses pay), then it may make sense to forget cutting business taxes, and instead invest more in our City.

So, here is where the open-records, and reality-based decision making comes into play:

Before we make a decision on whether to cut business taxes, we should know how much each business actually pays to the City each year. (As we know from the Vince Fumo property tax fiasco, how much each person pays in property taxes is a public record.) Is a small businessperson actually saving enough money to re-invest in their business, or to hire additional workers? Without having real statistics, how would we know?

So, before we decide to cut business taxes or not, we should know how much every business- from big old Comcast to the smallest person just opening up shop, pays in taxes to the City each year. This may shock you, but under the previous Mayor, the Commerce Department generally refused to provide these numbers. I guess they thought it was their business only. But, with a new Mayor focused on transparency and the like, I am hoping things change.

Until we know these numbers- and see just how much business people will actually benefit from a tax cut (as opposed to our biggest firms)- we can not use reality based decision making.

I suspect very few people- from City Council, to the new Commerce Director to Small Businesspeople themselves- actually get what these numbers are. But, before we simply start cutting taxes, shouldn’t we make sure that these basic questions are answered? If there is a real privacy issue, the actual business names themselves can be redacted. But, either way, all we need is something that should be quite simple: some sort of excel/dbf type file, with a business, and the amount of each tax that it paid per year. We can analyze it from that.

It is a new day in Philadelphia. A day for open government. And a day when we can make budgetary decisions with our eyes wide open. Let’s see those numbers before we start tax cutting.

Syndicate content