News Summary

Philadelphia’s Tax Reform Commission has proposed the elimination of the Business Income and Receipts Tax (BIRT) to combat the city’s alarming poverty rate exceeding 20%. Led by Mayor Cherelle Parker, the commission’s recommendations aim to attract businesses back to the city and boost economic growth through a phased approach. Critics express concerns over potential revenue losses and implications for public services. This proposal forms a crucial part of the discussions ahead of the budget presentation scheduled for March 2025.

Philadelphia’s Tax Reform Commission Proposes Elimination of Business Tax to Combat Poverty Amid Budget Negotiations

Philadelphia, facing a daunting poverty rate of over 20%, is in the midst of significant tax reform discussions led by Mayor Cherelle Parker and the City Council. In a move aimed at revitalizing the city’s economy and addressing the needs of its most vulnerable residents, the Tax Reform Commission has put forth a bold proposal to eliminate the Business Income and Receipts Tax (BIRT).

The Tax Reform Commission, set up by the City Council, has determined that high business taxes have driven commercial entities away from Philadelphia, with many opting to relocate to cities like New York and Boston or suburban areas where tax rates are lower. This exodus not only impacts job availability but is also a contributing factor to the city’s ongoing economic challenges.

The commission recommends a phased elimination of the net income portion of the BIRT over the next 8 to 12 years. Implementing this measure is seen as a vital step in fostering job creation and economic growth, subsequently aiming to reduce the city’s poverty levels. The city has witnessed a decline in commercial real estate leases since the COVID-19 pandemic, a situation exacerbated by the existing tax structure.

Comprehensive tax reform could have profound implications for the city’s governance and job market. Experts within the commission are advocating for immediate and decisive action, warning that failure to implement reforms could worsen economic conditions, lead to increased poverty rates, and threaten essential city services.

While some stakeholders have suggested a gradual reduction of the business tax, the commission asserts that small adjustments are unlikely to provide the necessary changes required for substantial improvement. The focus is on creating well-paying jobs, essential for lifting individuals out of poverty, which they believe the current tax framework inhibits.

Along with the elimination of certain business taxes, the commission also proposes lowering the wage tax from the current rate of 3.75% to below 3% over the course of a decade. This would mark the first significant tax reform in Philadelphia in over 20 years. However, should these changes move forward, they would need to receive approval from the Pennsylvania state legislature due to legal limitations on how the city can tax businesses and residents.

There are concerns regarding the financial implications of this proposed reform. Estimates indicate that tax revenue could decrease significantly, with potential losses ranging from $498 million to nearly $2.2 billion, depending on the reform schedule adopted. Critics of the proposed changes argue that they primarily benefit large corporations, jeopardizing vital public services and potentially increasing the tax burden on regular residents.

The BIRT currently serves as the city’s third-largest revenue source, generating an estimated $617 million of the projected $6.27 billion budget. The commission’s findings are expected to heavily influence discussions around the city’s budget, which Mayor Parker will present on March 13, 2025.

The proposed reforms may lead to a clash in the city’s political landscape, with moderate Democrats typically favoring increased business growth standing in contrast to progressive groups who oppose corporate tax cuts. In addition to the tax reform recommendations, the commission also emphasizes the necessity of establishing an Office of the Tax Advocate to assist taxpayers and creating a Jumpstart Fund focused on job training and small business loans.

Furthermore, the commission advises that future evaluations also include a review of Philadelphia’s parking and sweetened beverage taxes, as these taxes directly affect both residents and small businesses. As Philadelphia grapples with deep-rooted economic concerns, this proposed tax reform has the potential to reshape the city’s financial landscape significantly.

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Additional Resources

• Philadelphia Magazine: Tax Reform to Combat Poverty
• Philadelphia Inquirer: Tax Reform Commission
• Philadelphia City Council: Tax Reform Overview
• Axios: Business Wage Tax Cuts
• Wikipedia: Tax Reform

Author: HERE Philadelphia