Philadelphia Considers Major Tax Reform to Boost Economy

Philadelphia City Government / Philadelphia Tax Reform Commission

The Philadelphia Tax Reform Commission was established by City Council President Kenyatta Johnson to address the city’s economic stagnation and high poverty levels. Comprising members from the Mayor’s office, City Council, the City Controller, and local chambers of commerce, the commission’s primary goal is to overhaul the city’s tax structure to foster economic growth and create a more business-friendly environment. Historically, Philadelphia relies heavily on the Business Income and Receipts Tax (BIRT), which accounts for a significant portion of its revenue. Recognizing the need for reform, the commission has recommended phasing out BIRT over 8 to 12 years and reducing the wage tax, aiming to attract new businesses, stimulate job creation, and improve overall economic prospects for residents.

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News Summary

Philadelphia is contemplating a significant tax reform aimed at phasing out the Business Income and Receipts Tax (BIRT) over 8 to 12 years. This move by the Tax Reform Commission, established by City Council President Kenyatta Johnson, seeks to alleviate burdens on businesses, stimulate economic growth, and address high poverty levels. The proposal has sparked debates among stakeholders, with some advocating for tax cuts and others emphasizing the need for enhanced revenue collection to improve city services.

Philadelphia is considering a significant reform in its tax structure as the Philadelphia Tax Reform Commission has put forth a recommendation to phase out the Business Income and Receipts Tax (BIRT) over a period of 8 to 12 years. This initiative is intended to stimulate economic growth, alleviate burdens on businesses, and elevate the city’s economic prospects amidst rising poverty levels.

The commission was established by City Council President Kenyatta Johnson to tackle ongoing economic stagnation, with Philadelphia currently grappling with the highest poverty rate among the ten largest U.S. cities. Approximately 20.3% of the city’s residents are living in poverty, highlighting the urgent need for economically beneficial reforms.

By proposing the elimination of BIRT, the commission aims to provide meaningful relief for the city’s business environment and encourage job creation. This tax currently consists of two components: a gross receipts tax of 0.1415% on total sales and a net income tax of 5.81% on profits, a structure often criticized for being a double tax.

Annually, around one-quarter of city businesses, an estimated 35,500 firms, are subject to BIRT as they meet the $100,000 revenue threshold. Businesses impacted by BIRT typically face a median tax bill of about $1,315. In the city’s overall budget, BIRT is expected to contribute $617 million, ranking as the third-largest source of tax revenue, after the wage tax and property tax.

The commission is composed of pro-business representatives, including members from the Mayor’s office, City Council, the City Controller, and local chambers of commerce. Their goal is to create a more business-friendly tax structure that can attract new businesses and stimulate local economies.

However, the recommendations have sparked a significant debate among stakeholders. Opponents of the plan, including progressive activists and municipal unions, argue against the notion of tax cuts and advocate for enhancing revenue collection as a means to improve city services potentially. This ongoing discussion comes in the context of budget negotiations for the upcoming fiscal year, which begins July 1.

In conjunction with the proposed elimination of BIRT, the commission suggested reducing the wage tax to a target rate of 3% or lower. Their recommendations reflect a clear acknowledgment that Philadelphia’s tax structure remains uncompetitive in comparison to nearby regions. The aim is to create an environment that fosters small business growth, which has been stunted when compared to peer cities.

The commission highlights the need for a steady tax reduction schedule, which supports better business planning and expansion efforts. Additionally, they are advocating for potential state-level policy shifts that would eliminate local tax complications and consider raising the minimum wage to $15 per hour.

A noteworthy component of the proposals is the suggestion to establish a “Jumpstart Fund,” which would allocate 10% of any BIRT revenue reductions towards investing in business development and job creation initiatives. This fund is designed to tackle chronic economic mobility challenges, with aspirations to generate tens of thousands of new jobs within the next five years.

While these proposals have received backing from business leaders eager for tax relief, skepticism persists among local advocacy groups. They express concerns about the effectiveness of tax cuts in fostering equitable growth and providing all residents with opportunities for economic advancement.

The Tax Reform Commission’s recommendations pose a fundamental question: Can Philadelphia shift its economic trajectory through tax reform? As discussions continue, the outcomes will play a crucial role in defining the city’s fiscal strategy going forward and addressing the pressing need for enhanced economic prospects for all its residents.

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Additional Resources

• The Philadelphia Inquirer
• Wikipedia: Tax Reform
• Philadelphia City Council
• Google Search: Philadelphia tax reform
• Metro Philadelphia
• Google Scholar: Philadelphia business tax
• Axios Philadelphia
• Encyclopedia Britannica: Taxation
• Audacy News
• Google News: Philadelphia business tax exemption