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Wage-tax cuts would help Philly prosper

The wage tax has been a significant barrier to more job creation in Philadelphia. It’s a major reason that 40 percent of Philadelphia residents outside of Center City leave the city every day to go to work.

The Committee of Seventy and the Economy League of Greater Philadelphia have been civic fixtures in Philadelphia for more than 100 years.  Both were born and raised in the heart of the Progressive Era in Philadelphia, when a city bursting at the seams with growth cried out for the steadying hand and goodwill of prominent business and civic leaders — people like Samuel Fels, an entrepreneur/philanthropist who was a founding board member of both organizations. Leaders like Fels, committed to the city and region but not beholden to its political structure, could afford to take the long view to tackle long-term, persistent challenges that threatened our future prosperity.

Seventy and the Economy League have maintained that focus on the long run, shaping and informing public debate around what matters most for our city's and region's civic and economic health. Seventy has always been more focused on the challenges of governance — who decides important questions and how those people should be chosen — while the Economy League has focused on fostering informed and collaborative leadership around issues critical to our region's competitiveness.

Somewhat ironically for two organizations born during the boomtown years of the early 1900s, the critical questions framing our work for the last 30 years have been about growth — more precisely, its absence.  Despite the demography-driven flowering of Center City in the last few years, Philadelphia has lost a quarter of the jobs it held in 1970, while our Amtrak Corridor seatmates in Boston, New York City, and Washington have gained between 12 and 24 percent since then. Philadelphia is the slowest growing of the 26 largest cities in the country, and our region ranks 10th out of the 10 largest metros.

A 2015 Brookings Institution report demonstrates the consequences of slow economic growth. For cities like San Francisco, the numbers told a story of great wealth but great inequality, with almost 40 percent of households making more than $100,000 and a staggering 16.4 percent making more than $200,000.  In stark contrast, in Philadelphia just 12 percent of households made more than $100,000 and only 2.4 percent of households made more than $200,000.  Even the city of Camden had a higher percentage of very high-income households than Philadelphia.

Much has rightly been made of Philadelphia's high poverty rate, but these numbers suggest an equally troubling conclusion — that in addition to being poor, Philadelphia is also not wealthy. Why is this important? It means that even if city leaders wanted to redistribute wealth to poorer residents, there's not much to redistribute. It means that if we want to spend more on schools, we don't have the local wealth to support it.  In 2015, Philadelphia had only 15 percent of the real estate tax base per pupil as Lower Merion — so it hurts much more to generate the same tax revenue. Unless and until Philadelphia generates sustained economic opportunity and jobs and the wealth that follows, our prospects for becoming both less poor and more wealthy seem slim.

What could put Philadelphia on a new path of growth? For the region, the Economy League's World Class agenda has identified key priority strategies to boost growth over the long haul — supporting entrepreneurship, stoking our innovation economy, and selling our goods and services to the world. For Philadelphia, these strategies are also critical. But the city has one policy option supported by stacks and stacks of research that could put its economy on a different trajectory — lowering the wage tax.

Since its inception as a temporary tax in 1939 to tide the city over the Great Depression, the wage tax has been identified in scores of commissions and studies as the root of the city's wealth-building challenge. By taxing people's wages at such a high rate, Philadelphia drove away jobs and income. It's a major reason, as Center City District data shows, that 40 percent of Philadelphia residents outside of Center City leave the city every day to go to work. The wage tax has been a significant barrier to more job creation in Philadelphia.

We are both veterans of the Briefcase Brigade march organized by the Chamber of Commerce in 2002 to demand substantial reductions in the wage tax. At the time, when that effort achieved partial victory, then-Councilman Michael Nutter suggested that "this was only the beginning" of long-term reductions to the job-killing tax. But it wasn't to be. Hammered soon after by the headwinds of the Great Recession and then by the budget realities of a wealth-strapped city, the city has yet to return to investing in substantial wage-tax reductions.

It's time to get back on track. A potential game-changing bill — the so-called Levy/Sweeney plan, promoted by the broad-based Philadelphia Jobs Growth Coalition — is now before the Pennsylvania legislature. If passed by the Legislature and approved by voters, it would allow the city to return to significant wage-tax cuts by offsetting them with increased commercial real estate taxes. It's a creative and thoughtful approach that avoids the tired guns-or-butter debates (which firehouse should we close if we reduce wage taxes?) that have stymied previous discussions.

We face an opportunity to correct a decades-old self-inflicted wound that has hamstrung growth for too long. Now is not the time to turn away from this opportunity — it's time for Philadelphia to grow again.

David Thornburgh is CEO of the Committee of Seventy.
Josh Sevin is acting executive director of the Economy League of Greater Philadelphia.