What we learned in this budget round.
We learned some good things.
We learned that Mayor Nutter is not the complete ideologue he often seemed to be while in Council, on the issue of business taxes. Then he tried to mandate into law the complete abolition of the main business tax, the BPT. He did this repeatedly and relentlessly, and fortunately he failed. Now, in his first budget as Mayor, he proposed much more moderate BPT cuts, abolishing the gross receipts portion over 8 years, and cutting the net income portion by 12% over the same period of time.
Even more encouraging, when the Mayor learned that the City had a revenue problem due to the recession, he proposed that Council slow the BPT cuts even more. Council followed his recommendation, so now it will take ten years to reach the Mayor’s target, rather than the 8 years he initially suggested.
Still more encouraging, the Mayor faced down the cheerleading of the Philadelphia Inquirer in slowing his proposed cuts. The Inky considers speed of light business tax cutting to be sancrosanct. The Mayor said, no, we have to see if we can afford them. Taxes raise revenue, revenue pays for services and investments, there has to be a choice. And to some extent, he chose services and investments.
So much for the good news.
Unfortunately we also learned that the Mayor is still willing to cut business taxes in a highly regressive manner. That is he wants small business and big business alike to get the same cut in their tax rates. Walmart , Çomcast and Sunoco simply don’t need this help, and will take the money and run with it, or send it to shareholders who also don’t need it and will spend it in places far from Philadelphia.
We learned that all but 1,600 or so of the businesses in Philadelphia are relatively small businesses. If we cut the tax only for them we could save most of the revenue that’s lost from across the board BPT cuts. We also learned that some unknown portion of the businesses paying the BPT are located outside of the City. We could structure the tax so that businesses outside the City would still pay. But so far the Mayor seems uninterested in targeting tax cuts in a way that limits relief to either small or in-City businesses.
We learned further that the Mayor favors Walmart, Comcast and Sunoco over low wage workers. He delayed his BPT cuts, but ultimately intends to take the BPT down to the same levels as he initially proposed. Not so with the wage tax for the working poor.
When he was in Council the Mayor was instrumental in helping the late David Cohen pass his wage tax rebate for low-wage workers. But Nutter insisted on phasing it in over six years. Now as Mayor, he proposed abolishing it outright in his first budget. Finally he relented, but he still insisted that the rebate be delayed a year, and then pretty much cut by half. Last week in Council he signed the bill truncating the benefit and actually boasted that he was proud to make this rebate happen. He actually made it unhappen.
So we learned the Mayor knows which taxpayers he prefers, how to spin, and that he has chutzpah.
We also learned that City tax policy is not about economics, but about raw power. Obviously tax cuts targeted toward the working poor of Philadelphia will spur the Philadelphia economy, if tax cuts help at all. Low-wage Philadelphia workers will spend the money here at home, in our city. Big business, not so much. But they do have a bigger voice here, led by the biggest voice of all, the Inky. The Inky may not rule absolutely, but compared to Joe Sixpack, it’s clearly no contest. Joe’s wage tax rebate won’t even begin until 2013, and then it will be so small it may not be worth the effort to apply for it. If you own any part of the Inky, you get yours next year.
So where are we from a social justice standpoint on taxation in Philly? Better than we had reason to expect in February, but with much room for improvement.
Are there any other issues?
I heard Helen Gym on the radio about PPA finally giving up a couple of million to schools, pointing out that we still need a full auditing of the PPA - especially in the context of City Council dramatically expanding their enforcement responsiblities. Our local prisons are unconstitutionally overcrowded and taking an ever expanding slice of the city's revenue stream, while parole and reentry programs struggle for every dime (these days somewhat less so thanks to Mayor Nutter).We have two competing visions of how to deal with our city's crisis of incarceration - one like this and one like this.
As we head into a long hot summer I note that a commendable turn toward community policing and youth prevention has appeared to make a positive difference in my own police district. Nutter is unveiling a major initiative to deal with chronic homelessness in our city. And the Boy Scouts are suing the city to be allowed to discriminate at tax payer expense indefinitely.
I'm not saying the BPT is not an issue, I just wonder if it is the only issue of note in our whole balance of tax versus revenue, jobs versus city services in the City of Philadelphia. Hey isn't there still some lingering issues with unfair property tax assessments that unfairly hit blue collar families but give young professionals in rapidly gentrifying neighborhoods a pass on paying their fair share for our crumbling schools?
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
The BPT is not the only tax issue of note, but
how that tax is structured goes to the heart of whether taxation in this town is fair or unfair. And unfair taxes undermine any effort to maintain the robust government that's needed to deal with the overwhelming problems facing this City.
Overall I'm actually pleased with Nutter's performance. But that shouldn't make him above criticism. The City poverty rate is still over 25% and there's no targeted program to deal with it. The welcome increases in services that are contained in next year's budget are a fraction of what's needed. And the further increases that are needed will never happen if the BPT is cut for businesses that simply don't need it.
The real estate tax issue is also undoubtedly an important one. Equalizing real estate valuation without penalizing long-term resident, blue collar families is something that absolutely should be done. But getting real estate taxes right is also connected to getting the BPT issue right. Because it's been clear for years that the powers that be in this town want real estate taxes in general to go much higher as a substitute for the revenue that would be lost from BPT cutting. Although Brett Mandel will give you all sorts of high-minded reasons why it would be fine for overall real estate taxes to be higher, the real reason boils down to business pays a fraction of real estate taxes, but 100% of the BPT. So if and when your real estate tax goes sky high, you can thank the across the board BPT cutters for that too.
Considering
I pay around $600 a year in property tax for a small apartment building, I'll worry about property taxes "going through the roof" when they more then triple. $600 btw is about what most of the one bedroom apartments on my block fetch in a month. Most of the buildings on my block have 3 or 4 in them - not counting the storefronts that many of the less community minded (or less entrepeneurial I suppose) landlords leave boarded up since the tax structure does not give them much of an incentive to put into service say renting to local job-providing businesses.
I think that there is a pretty good argument that the property tax question actually significantly impacts lack of affordable housing. Why deal with grandma's old house in the neighborhood you no longer care for if property taxes are less than $200 a year if you leave it boarded up? Why invest in fixing up rental units and making them habitable if it costs you less than basic cable to sit on an unused 5 or more unit boarded up apartment building indefinitely? Just let it sit till someone else makes the neighborhood "hot" or until - eventually - L&I send you a bill for demolishing it because it was deemed unsafe - which you will probably never pay anyway.
I would also argue that property taxes from speculators sitting on abandoned properties in this city could add up to something the school district could put to good use considering our dismal graduation rates as well.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Seems like you're making a contradictory argument here
On the one hand you feel like you're doing well as a landlord given that your property tax is equal to just one month's rent in a small multi-unit building. That would suggest smart landlords should be able to do pretty well. On the other hand you think the tax is so low that it's spurring speculation.
As that contradiction suggests, the property tax issue is not an easy one. It impacts on economic activity by entrepreneurs as well as on the quality of life of tenants and homeowners. Ultimately, in my view, the tax itself is highly regressive, since its cost is completely separated from taxpayers' overall wealth and disposable income. Were those who had little or no ability to pay truly sheltered from its impact, I'd have less of a problem with the property tax. But many of those pushing for higher assessments give lip service only to the need to protect those who would be the victims. Let's have a campaign to give homestead exemptions to those living on the edge; then we can talk about increasing the tax on speculators and others who should pay more. But let's not increase the tax first, and worry about its casualties later.
Well two differnet threads
One is that the city sizably discounts the taxes due on abandoned and unused properties so that on my block an improved office building strangely pays a couple thousand a year in property tax, whereas as a boarded up, larger building pays less than $100. Our property taxes literally reward people for sitting on property and doing nothing with it. It financially rewards blight. The extreme version of this train of thinking is Henry George and Land-Value taxation but at a simple level reducing the discounts given to people who sit on unused properties so they have an incentive to either fix them up and put people or businesses in them or sell to someone who will. I agree that property taxes are not "progressive" in that they tax unrealized wealth and have very little to do with how much disposable income the owner actually has access to. That said property taxes against land speculators have a very important "stick" function that the City of Philadelphia does a terrible, often actively counterproductive job of - making out urban blight and makes the social inequities between neighborhoods even worse. Thats criticism one of property taxes in Philly.
Criticism two. The assessments currently are pieces of fiction, patently absurd. We all remember the brouhaha about Fumo's assessments but they skewed across the board. The example from my block is just one example of how the process is wrong. Whereas single family homes around me may have screwy assessments (they are assessed at say $100K when they actually sell for $250K) the ones on my block are insane (apartment buildings assessed at around $20K that typically sell for around $150K - still in need of lots of cosmetic repairs). That isn't fair. We can have a debate about whether its more or less unfair than the BPT but the point still stands that the way Philly taxes property is currently arbitrary and random - which is bad news when so much of our school funding depends upon it. How can we have a rational debate about school funding when one of its largest funding streams is so deeply irrational?
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
We don't really disagree in theory, but . . .
how you get to a fair system is the rub. First we agree that speculators who ruin neighborhoods should pay large. There was actually a City tax on the privilege of holding vacant land enacted in the eighties, but for various reasons it was never implemented and eventually repealed. The Law Department decided it was illegal double taxation, but I'm not sure that's right. In any event, there should be creative ways to make the business practice of land speculation much more unpleasant than it is now.
As to the fictional quality of existing assessments, that's true. But it's largely true because people of Fumo's class have had the clout to keep it that way, in their favor. Until that clout goes away, it's hard to believe that reassessment won't mainly benefit gentrifiers; that is fall hardest on those working class people who have had the misfortune of having had their neighborhoods turn. Many of those who've caused the misfortune - often with the best of intentions - will be unaffected due to their abatements.
In short, the system is not just unfair, it's stacked against the working class. So I repeat, until protections can be put in place for them, changing the system will only compound its existing injustices.
I think we agree as well on some solutions
Caps on how much property taxes can go up (or at least a deferment of out-of-scale rises until the homeowner dies or sells the property) to protect long term home owners are part of the solution. Phasing out the abatement or attaching it directly to investment in the types of residential development we would want to encourage - say for example if you build a large new residential development in an area underserved by grocery stores, your units get the tax abatement only if the development includes a grocery store as well.
But I still don't understand justifying overtaxing stable and declining working class neighborhoods and drastically undertaxing already long prosperous areas - which is the status quo - because we can't sit down to figure out how to protect a much smaller number of residents in areas on the rebound. Its like we have to maintain a broken system that is unfair to 95% of the people and actively helping to destroy the fabric of our neighborhoods because we can't pass common sense protections to those in neighborhoods that are on the upswing - even though most people agree on at least some of those protections. Even the most fervent "BPT cutters" as you call them.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
I'm not suggesting that we overtax working class neighborhoods
I'm simply saying that going from theoretical protections to real ones must be the first priority when so many who can't hire lawyers are at risk. And that's particularly so when you consider the motivation of many of those who are most fervently behind the push for a new round of assessments, i.e., to increase overall r.e. tax collections. Let's push to enact protections first and make sure they cover everyone who needs them. Then let's get an ironclad commitment from the Mayor and Council that they won't use the reassessments to realize a stealth increase in property taxes overall. And then I think we should be OK with reassessments going forward. There is injustice in the present system, but there's also lots of potential for increasing it. Call me paranoid, but for me preventing that result is job 1.
Agreed
No stealth overall increase in r.e. taxes and protections for long term homeowners. I just want to point out that for most people in living in neighborhoods where housing prices have not gone up proportionately beyond the overall market trends or in areas where they have actually gone down or not kept up with inflation - all of those people are currently overtaxed proportional to "gentrifiers" and "already gentrifieds". And they are getting crappy schools in the bargain.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
OK justify this
Making gentirifiers pay their fair share for schools instead of giving the rather insane property tax discounts they receive currently is "progressive" how exactly? This is one aspect of the auto-pilot "anti-gentrification" argument I don't get. Currently rich people in long-gentrified neighborhoods get a positive steal in this city on property taxes while our schools starve. I don't see how thats good for anyone.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Let me try it this way: timing is everything
All I'm saying is let's not assume that a "fair" reassessment will mainly hit the gentrifiers and others who can pay. Theoretically assessments are supposed to be fair right now. But humans did the assessing, and we wound up where we are. Even computer-driven reassessment is not fail-safe; it all depends on the standards and programming that's used. I have no confidence that a new reassessment will really resolve the inequities without piling on more. That's why we need statutory protections, FIRST. THEN, we can take risks with error-prone reassessing.
I'm pretty sure anybody who
I'm pretty sure anybody who has looked at realtor.com for an afternoon can produce assessments that are 50-75% more accurate and evenly distributed than the ones the BRT uses.
Here's a challenge. Think of 5 friends in different parts of town and do a block search of their block on the BRT site and see if you think more than 10% of the assessments are accurate or fair.
http://brtweb.phila.gov/brt.apps/Search/Disclaimer/disclaimer.aspx?url=s...
-Sean
MrLuigi, my cat, actually only types half as badly as I do.
Humor me, please
I think this violates the meaning of "regressive." Progressive tax rates charge a higher rate at higher levels of income/wealth; regressive taxes charge less -- for example, social security payroll taxes, which max out at a certain income level. Sales tax is sometimes said to be regressive relative to income because poorer people tend to spend more of their income on goods subject to sales tax (as opposed to say, investment income). Philadelphia's wage tax is arguably regressive relative to income in the same sense, since while it's a flat tax, it's limited to payroll wages and not other kinds of income. And of course, property taxes are currently regressive relative to real property wealth, since wealthier homes and neighborhoods generally pay a smaller real rate than lower-value properties.
The business taxes, however, are flat taxes, and the approved cuts are flat cuts. All profits and receipts are taxed at the same rate, both before and after the cuts. Eliminating the gross receipts tax actually makes the BPT more progressive relative to profits, since less-profitable businesses pay a larger portion of their total tax in gross receipts.
What the Mayor and most of Council are not doing is proposing a way to cut or restructure business taxes in an explicitly progressive manner. But "not progressive" does not equal "regressive."
We can quibble over labels, but bottom line, big biz gets more
and workers less under the tax policy that just passed Council. Overall the tax package was bad news for the less affluent. Low wage workers get off the worst, of course, since their wage tax rebate was put off yet another year, and essentially cut in half. As to the BPT, a flat tax reduction means that a business with 10 times the income of another business gets 10 times the tax benefit in actual dollars. A fair tax cut given its regressive structure would be to do something to unflatten it. That didn't happen. It could have happened with a little creativity. For instance, Pittsburgh exempts the first $20,000 of gross receipts from its business tax. That means a business with $100,000 in receipts pays 80% of the nominal rate while a business with $1,000,000 in receipts pays 98% of the nominal rate. Or the City could have gone to Harrisburg and demanded that banks, insurance companies and PECO be taxed, thus enabling the tax burden to be spread more equitably. Or it could have done a number of other things which I'll be talking about more later this year.
So regressive or not, tax policy in Philly is definitely disappointing.
Genius memories
I wasn't aware of Pittsburgh's program, but that's a good model -- in fact, it's one I've proposed before. It's also similar to what Nutter's proposed (a homestead credit) for homeowners paying property taxes.
I still think that if Council gets properly creative, they can find ways to make our tax code more progressive across the board, from wage tax credits to BPT to property taxes. It's all about how it gets served up. Nutter loves to cut taxes. It's why he helped push for the Cohen credit in the first place. He pulled it back when he thought he could cut taxes across the board lower than the original Cohen cut would have cut them (if the tax rates had remained where they were). Likewise, if council says to Nutter, "we can completely eliminate gross receipts in 2010 for businesses with less than 50,000 in receipts (or whatever)" and puts together a bill everyone can get behind, I don't think he would say no.
I know religious sentiment isn't the norm around here but . . .
All I can say is "from your mouth (or rather keyboard) to God's ear."