PhillyDeals: Everyone's got a point of view on tax hikes

There's nothing like crusading politicians who want to boost taxes on drinkers and smokers to unite Philadelphia bar owners against City Hall.

"What we have here is the perfect storm," moaned John Longacre, owner of American Sardine Bar at 18th and Federal Streets and head of the Philadelphia Licensed Beverage Association, whose activity rises and falls in rough correlation with the perceived municipal threat to owners' income.

Longacre was responding to City Council President Darrell L. Clarke's proposal, officially endorsed by Mayor Nutter on Wednesday, to boost the city's liquor-by-the-drink tax to 15 cents per dollar from 10 cents, and Nutter's new plan to slap a $2-a-pack tax atop the $6 or so it now costs Philadelphia smokers to score a pack of Marlboros.

His version of the business-drowning tsunami: A lame-duck mayor and Clarke - "a lifetime career politician who I don't think understands how hostile an environment Philadelphia small businesses already work under" - ganging up on struggling businesses.

The money is supposed to help relieve the city's cash-strapped schools.

"It cuts right into the tavern owners' bottom line, so they go crazy," noted Steve Mullin, president of Philadelphia-based public-policy consultant eConsult Solutions Inc.

"But I've never seen any evidence liquor license values are dropping," Mullin said, indicating that the bar business must still be profitable if the licenses are increasingly in demand. "It's a local and captive audience there, especially in the neighborhoods."

Plus, it's all for the kids, right?

"There is absolutely no question that the public schools in Philadelphia are underfunded," Longacre said. "But the city needs to fund the schools by cutting government and wasteful spending. Not on the backs of businesses that are already so overregulated with all those nuisance fines, like $75 for putting my trash out early."

He said Nutter should work harder to boost delinquent real estate tax collections instead of driving drinkers away to South Jersey.

"Obviously we'll pass the increase on to the customer," said Eleanor Driscoll, owner of Knights Tavern at Knights and Woodhaven Roads in Northeast Philadelphia. "I find it frustrating I'm already spending more than $20,000 in liquor-by-the-drink taxes for schoolchildren. Back when they passed that, they told us, 'Better on the schools than on the stools.' But that money didn't fix the schools."

What to do? "My personal opinion is, tax the lawyers. They're the ones making up all these rules," Driscoll said.

Smokers would face a bigger hit than drinkers if the tax package passes. "If you're running a business that sells [tobacco], this puts you at a distinct disadvantage to competitors in suburban Pennsylvania, in South Jersey, and especially in Delaware," said David Sutton, spokesman for Altria, owner of Marlboro cigarettes and other Philip Morris brands. He said Philadelphia shouldn't expect much higher revenues from higher taxes - the city is forecasting $87 million in new revenues in the first full year - because it's so easy to leave town and stock up on cheaper smokes.

A higher cigarette tax could shift customers of convenience-store chains like Wawa Inc. to the suburbs.

The company gets it that "this particular issue is challenging for both the mayor and the City of Philadelphia," and it hasn't yet calculated the likely impact if the taxes are enacted, Wawa spokeswoman Lori Bruce said.

New York and Chicago have high cigarette taxes, and their experience shows Philadelphia "will need to take vigorous enforcement steps" or smokers will turn to suburban and black-market cigarettes, Drexel economics professor Mark Stehr said, citing a study by David Merriman at the University of Illinois and his own research on state taxes and evasion.

Philadelphia's proposed drink-tax increase is smaller and not so likely to drive drinkers away, Stehr said.