City Councilmember Kendra Brooks on Thursday introduced a bill that would reinstate a decades-old tax on “intangible wealth” — mainly directly held stocks and bonds. The tax would total 0.4% of their value, or $4 for every $1,000 of holdings, according to a copy of the bill.
The bill seeks to remedy growing inequality in wealth by taxing richer residents. It estimates that the “small tax” on stocks and bonds held by all residents could generate $200 million in revenue out of a $5.6 billion city budget that the mayor proposed starting July 1. The extra money could be used to create or expand programs “that would enable us to break down the barriers of race, class and gender that stand in the way of opportunity of so many of our fellow Philadelphians,” according to the Keystone Research Center and Pennsylvania Budget & Policy Center, which wrote a paper supporting the bill.
Brooks, an at-large member who won her seat in 2019 as a member of the Working Families Party, has been a progressive force on Council, submitting a bill to require many employers to give paid leave to workers for absences due to COVID-19. Her wealth tax measure so far is supported by Councilmembers Jamie Gauthier and Helen Gym among the chamber’s 16 members.
But business leaders are already criticizing the bill, saying it would give people an incentive to leave the city while the economy was still recovering from the pandemic.
The proposed wealth tax “is another example of well-intentioned policy that in practice would be disastrous for Philadelphia,” said Jabari Jones, president of the West Philadelphia Corridor Collaborative, an advocacy group for small businesses along Lancaster Avenue and other commercial corridors.
“Private company shares would be taxed,” and many middle-class people would pay the levy, Jones said, adding that “the bill seems rushed. A lot of thought wasn’t put into it.”
Retirement accounts and mutual funds would be exempt, according to the bill, but not 529 savings plans for education or privately owned businesses.
“We don’t have the exact number of Philadelphians who have direct holdings in stocks and bonds, but we know that Philadelphians hold about $60 million to $70 billion in financial and business wealth,” said Brooks spokesperson Maggie Hart. Brooks herself does not own any stocks and bonds subject to the tax.
The top 5% of Philadelphia families by income would account for 70% of revenues raised by the taxes, according to estimates from the Keystone Research Center and Pennsylvania Budget & Policy Center.
About 50% of new revenues would come from the top 1% of earners, according to their study.
What’s a Wealth Tax?
A “wealth tax” is a term that President Joe Biden and U.S. Sen. Elizabeth Warren (D., Mass.) have embraced as a way to force high-net-worth Americans to pay their fair share in taxes.
In his budget announced Monday, Biden called for a “Billionaire Minimum Income Tax” that would put a 20% minimum levy tax on all income — including unrealized capital gains — for Americans with assets worth more than $100 million.
Billionaires make most of their money from capital gains, which are taxed at a lower rate than the paychecks that the majority of American workers take home.
Warren previously proposed with other Democrats in 2021 the Ultra-Millionaire Tax Act, which would levy a 3% total annual tax on wealth exceeding $1 billion and a 2% annual tax on the net worth of households and trusts from $50 million to $1 billion.
Only five countries collected revenues from net wealth taxes on individuals in 2020, according to the Tax Foundation: Colombia, France, Norway, Spain, and Switzerland.
Who does — and doesn’t — support the Philly wealth tax?
Philadelphia. the nation’s poorest big city, could be the first major metropolitan area to institute a wealth tax.
Bill 200371 was first introduced in June 2020 by Brooks and cosponsored by Gym. On Thursday, after the Mayor’s budget proposal to City Council, Brooks again called for a city residents’ wealth tax to address inequality and fund services that benefit lower-income residents.
“Much research has been done on the ‘myth of the moving millionaire,’ which has shown that millionaires rarely move based on taxes,” Brooks said in an e-mailed statement. “The idea that a large chunk of the population will suddenly move because of a moderate tax on stocks is a fear-mongering tactic. It’s a myth circulated by the rich who would prefer to continue not paying what they owe.”
But some business leaders in the city came out against it.
“The only individuals who will be caught with the tax burden are middle-class working families and small business owners,” said Jones of the West Philadelphia Corridor Collaborative. “These councilmembers believe that taxing the investments held by residents would benefit the city by taxing the ‘ultra rich.’ In practice, the tax would prompt wealthy individuals to simply change their permanent address [to] outside of the city, avoiding the wealth tax and skirting the current taxes they pay that fund essential city services.”
Jones said the tax would not hit its intended target. “It’ll be the small coffee shop owner investing in the stock market to save for retirement or the working family making small investments to pay for a child’s education, or the investor who invests needed capital into Philadelphia job-creating companies who will bear the brunt of the tax,” he said.
A wealth tax might prompt banks and financial institutions to leave, which would disproportionately hurt Black and brown families in neighborhoods that already have limited access to financial services, Jones added.
Brooks’ platform also includes ending the 10-year tax abatement and collecting payments in lieu of taxes (PILOTs) from universities such as Penn, Drexel, and Jefferson.
What Are the Bill’s Chances?
So far, victory looks far from certain. At least one left-leaning local advocacy group called TaxTheRichPHL endorsed Brooks’s bill.
But another, the Inclusive Growth Coalition, which includes the African American, Asian American and Hispanic Chambers of Commerce, issued a statement Thursday, saying the proposal “may generate headlines, but it is not a proposal that will advance population and job growth in Philadelphia. In fact, this kind of policy will only serve to increase Philadelphia’s already unfortunate reputation for being too highly taxed and comes just days after new census numbers revealed the city’s population dropped for the first time in a decade. Not only will increasing taxes like this not convince people to stay here, it disincentivizes others from moving and working here.”