City Council’s agreement late Wednesday to accept small but historic wage and business tax cuts marks one of the first major business-friendly moves by city government in decades, advocates and bill sponsors said.
Councilmember Isaiah Thomas introduced the business income and receipts tax (BIRT) cut, to 5.99% from 6.2%, while a proposal introduced by Councilmember Katherine Gilmore Richardson lowers the wage tax rate from 3.8398% to 3.79% for city residents, and from 3.4481% to 3.44% for people who work in Philadelphia but live outside the city.
“It may seem like a small reduction, but it’s very monumental and historical. The rate hasn’t been below 6% since 1988,” said Councilmember Allan Domb, who along with Thomas and Gilmore-Richardson led a group pushing for decreases in the city’s dreaded wage tax and the BIRT.
Philadelphia ranks among the nation’s highest for wage taxes, and double-taxes its enterprises through the business income and receipts tax — the only major U.S city to do so. Employers and employees who choose to locate just outside of Philadelphia city limits often cite the two taxes as major reasons.
Supporters of the cuts argued that a lighter tax burden would help small businesses that have struggled with inflation and financial losses from the pandemic.
“City Council decided to help our citizens and give Philly a raise,” said Councilmember Derek Green.
“It’s the first time I remember that in a single vote we reduced wage taxes and also small-business taxes.”
The cuts emerged as the result of a vocal lobbying effort by the city’s five main chambers of commerce.
“It’s terrific news,” said Sue Jacobson, spokeswoman for the Chamber of Commerce for Greater Philadelphia.
Jacobson was part of the Ed Rendell administration “when Rendell was mayor and put into place tax cuts that at the time people thought were small. But those cuts literally changed the perception and trajectory of the city. We all witnessed the extraordinary impact those cuts had.”
All the diverse chambers worked together as a coalition: the African-American Chamber of Commerce; Greater Philadelphia Hispanic Chamber; the Asian American Chamber, and the Independence Business Alliance/LGBTQ+ Chamber of Commerce, and the Greater Philadelphia Chamber of Commerce.
Will the trend toward lower taxes continue? Domb said he hopes so.
“In the U.S., the highest taxed municipality is New York, at 16.2%, and Philadelphia is at 16.1%. The other highest are cities in California at 8.8%,” he said.
“This cut will help tens of thousands of small businesses, and the diverse chambers did a phenomenal job,” Domb said.
The 5.99% rate is permanent, until and unless City Council votes to change that, he said.
“It’s one reduction, but it’s a start. We need to do more, perhaps under the next mayor,” Domb said.
The bill requires a second reading and won’t become law until a final vote next Thursday, Council’s final session before a summer recess.
While the cut from 6.2% down to 5.99% equals about a 3½% reduction, “this cut is super significant, because it signals to business owners and Philadelphians that the city is ready to grow the economy,” said Regina Hairston, president of the African-American Chamber of Commerce.
“For too long, Black and brown businesses felt like they had no voice in City Council. What we saw [on Wednesday’s late-night session] was bold leadership that said Black and brown businesses have been devastated by the pandemic. They have not been given an environment to grow — until now. It’s the signal to the rest of Council to say we’re not leaving Black businesses behind. We know you were devastated.”
Big business wants more
Longtime advocates for big business were milder in their praise.
“It’s a step in the right direction, a clear recognition by city leadership to send a very positive message to both employees and employers that Philadelphia wants to improve its competitive position, and this year is critical,” said Jerry Sweeney, chief executive of Brandywine Realty Trust and an advocate for commercial tenants in the city.
“But it’s just a start. We were hoping for a long-term commitment, say a 10-year program or framework for the city to reduce both the wage and the BIRT taxes,” said Sweeney.
The Inclusive Growth Coalition — which includes the diverse chambers and other organizations — wanted a BIRT tax cut closer to 3%, according to its members.
“That certainty would be more compelling, but doing nothing sent a negative message, also,” Sweeney said. “Even taking this step is a good signal. The city recognizes the tax burden on employees who live and work in the city is high and punitive, and the cost of doing business puts Philly at a competitive disadvantage.”
Could there be future cuts? Possibly, Sweeney speculated, “if this amazing coalition remains solid going forward. I hope it’s the beginning of a pivot many of us have advocated for, for years.”
Still, experts are calling this an incremental win. Research has shown that among the 30 largest U.S. cities, only Philadelphia taxes local businesses on both net income and gross receipts. “The cut to the income portion, if enacted, would be the largest in several decades,” said Thomas Ginsberg, senior officer with The Pew Charitable Trusts’ Philadelphia research and policy initiative.
The Philadelphia Inquirer is one of more than 20 news organizations producing Broke in Philly, a collaborative reporting project on solutions to poverty and the city’s push toward economic justice. See all of our reporting at brokeinphilly.org.