Earlier this month, Philadelphia got the good news it would receive about $1.4 billion from the federal coronavirus relief package, which would help the city avoid deep budget cuts in the short term. But that cash influx won’t fully cover the pandemic’s enormous economic impact, nor revenue challenges that predate COVID-19. While some in the city argue that now is the time for Philadelphia to turn to wealth taxes as a solution, others object that approach will hurt business growth.
The Inquirer turned to two local union members to debate business leaders: Is it time for wealth and nonprofit taxes to add to the city coffers?
Yes: Tax wealth to end a scarcity mindset.
By Paul Prescod and Peter Cutty
Philadelphia breathed a sigh of relief when we found out the city will receive stimulus funding to help avoid the harshest budget cuts the Kenney administration warned of in February. But now is not the time to relax.
The COVID-19 crisis has revealed how fragile and unsustainable our city’s revenue streams are. The American Rescue Plan Act was passed in exceptional circumstances. What happens when federal dollars dry up?
City officials have broadcast a false narrative of scarcity, when in fact we live amid plenty. There is more than enough money to avoid austerity; we just need to reclaim it for the public good. This pandemic should be a wake-up call for us to reimagine whom and how we tax — because our communities cannot withstand another year of painful cutbacks.
The past year has only widened wealth-based and racial disparities in our city, state, and country. Pennsylvania has 13 billionaires, per Americans for Tax Fairness (AFT), with net worths totaling $36 billion. While thousands of Philadelphia students received low-quality internet for online schooling, Comcast made over $25 billion in one quarter of 2020 — and CEO Brian Roberts’ net worth increased by $100 million last year.
According to AFT, the $931 billion wealth gain that accrued to billionaires between March and October exceeds the two-year estimated budget gap of all state and local governments. The wealth these individuals and corporations command was produced off the backs of workers and everyday Philadelphians. They can and should pay higher taxes to help our city thrive.
Instead of austerity, the city should respond to budget strain with progressive revenue policies, many of which could fill the budget gap now and put the city on a more solid fiscal footing into the future. Progressive revenue policies rest on one shared principle: Those who have more, pay more. Our current taxation, on the other hand, is mostly regressive, requiring those who make less to pay a larger percentage of their incomes.
Currently, the Pennsylvania Constitution forbids a progressive income tax, which taxes higher incomes at a higher percentage rate. But proposals like the state-level Fair Share Tax would get around this problem by taxing forms of income that the wealthy tend to receive (capital gains) at a higher rate than those the poor tend to receive (wage income).
Institutions such as the University of Pennsylvania are deemed “nonprofits” and thus do not have to pay taxes, despite having an endowment of over $14 billion. Payments in Lieu of Taxes (PILOTs) can be collected from places such as these and put toward expanding city services. Why should we accept the idea that a wealthy university can sit on billions of dollars as our schools, roads, and bridges crumble?
“Why should we accept the idea that a wealthy university can sit on billions of dollars as our schools, roads, and bridges crumble?”
Philadelphia’s gross receipts tax, applied to a company’s gross sales, is extremely low. We can increase it for corporate giants like Comcast while exempting small businesses. We can reinstate the city’s wealth tax — though it was repealed in 1997, Councilmembers Kendra Brooks and Helen Gym introduced a personal property tax last year. And taxation’s not our only policy lever: Instead of paying 10% of our budget to Wall Street in debt service payments, Philadelphia can create a public bank that loans money for city projects at low interest.
All this only scratches the surface of our options. We know the devastation another round of budget cuts would do. Working people have paid enough. It’s time to tax the rich.
Paul Prescod is a public school teacher and member of the Philadelphia Federation of Teachers. Peter Cutty is a proud rank and file District Council 33 member working as a building maintenance mechanic at the airport.
No: Skip taxes and focus on family-sustaining jobs.
By Jerry Sweeney and Steven Scott Bradley
The pandemic generated significant energy to reorder the present. Much of this energy is appropriately directed toward social and economic justice.
In some cases, however, it is misdirected. For example, to embark on a strategy to tax our way to some theoretical nirvana while penalizing our nonprofits is misguided. It attacks a perceived symptom without addressing any of our foundational problems.
This last year, of all years, demonstrated the importance of finding common ground. We should all agree that growing equitably distributed family-sustaining jobs, reducing poverty, strengthening our educational systems, and investing in underserved communities are common aspirational objectives. Ensuring these aspirations become reality should be the bedrock of all public policy.
» READ MORE: Does Philadelphia need a public bank? | Pro/Con
We can also agree that Philadelphia is already one of the highest wage tax, business tax, and slowest job growth cities in the country. Between 2010 and 2019, we ranked 23rd out of 25 major cities with a private-sector job growth less than half the rate of America’s largest cities. The jobs we do grow are, unfortunately, low-paying ones. Between 2009 and 2018, a stunning 60.5% of the jobs we created paid less than $35,000 per year. Studies have shown that our high tax structure is a major impediment to growth.
As politically expedient as it may be to raise taxes and target nonprofit employers, it simply exacerbates the city’s fundamental problems of low job growth and high poverty.
This misguided approach reminds us that our current situation is a direct result of years of ill-thought-out policy decisions. We are here precisely because leaders failed to recognize the long-term consequences of seeking political comfort through this kind of short-term fix. This approach lacks courage and does a grave disservice to those constituents it’s designed to benefit. Continually using businesses of all sizes, and now nonprofits, as a never-ending subsidy pool will not grow jobs. The clearest path out of poverty is to have a fair shot at a good-paying job.
Our financially secure nonprofits provide a high level of public safety as well as educational and philanthropic contributions, already saving the city millions of dollars annually. Many religious and educational nonprofits barely make ends meet during good times. However, they faithfully execute their missions, adding tremendous value to our quality of life.
“The pandemic’s impact on our city’s budget demonstrated the fragility and absurdity of overtaxing mobile employees and job creators.”
Given where we are, every revenue-oriented public policy should be viewed through the lens of, “Does this grow family-sustaining jobs?” The tax-our-way-to-prosperity perspective does nothing to further this goal. It inculcates no financial discipline to be more efficient. It does not create a single job or pathway out of poverty.
For too long we have ignored the recommendations of two tax reform commissions and our own collective common sense. The pandemic’s impact on our city’s budget demonstrated the fragility and absurdity of overtaxing mobile employees and job creators. Most cities are using the pandemic to improve their competitive positioning; we can ill-afford to implement policies that erode ours.
The pandemic has forced each of us to reexamine the present and redefine our future. The city should do the same.
Philadelphia has amazing potential with “green shoots” — signs of recovery — everywhere. Our public policy objectives should both nurture and accelerate that potential. This is a moment to completely rethink our tax strategy to change our job growth trajectory. Developing a plan to make Philadelphia one of the country’s fastest job growers, addressing our foundational problems, is a great place to start. This goal can be achieved, and it will require a bold shift toward imagining what we want the city to be in 20 years.
Jerry Sweeney is president and CEO of Brandywine Realty Trust. Steven Scott Bradley is chair of the board of the African American Chamber of Commerce of Pennsylvania, New Jersey, and Delaware.