A Tax Reform Plan Even Progressives Can Love?

Larry Platt / Philadelphia Citizen Photo courtesy: Chris Mansfield In Philly, it’s been a longstanding challenge, the gulf between one’s national political perspective and the realities on the ground here. To wit: If you’re a proud supporter of the American labor movement — as well you should be — for a long time that meant turning a blind eye to thuggery and shady backroom dealings locally. Or: You may shake your fist at the Orange One’s (at best) amoral transactionalism, but shrug at our litany of City Hall perp walks. Even more to the point: You may lambaste Trump as the nation’s biggest spender in presidential history even while seeming to be fine with our status as the most-taxed city this side of Bridgeport, Connecticut. It is the Philadelphia progressive’s conundrum: What applies nationally just might be a bad fit here at home. Which brings us back to taxes. We’ve been on a longstanding binge, and it’s not only eroded our competitiveness — it’s resulted in our status as a slow-growth city that is once again losing population. More than 200,000 of our neighbors who are reverse-commuting to the suburbs for work still pay Philadelphia’s 3.75 percent wage tax, but they work alongside folks who pay 1 percent or less to their local government, which happens to provide more funding for better public schools.

“Economics should not be partisan. Right now, the suburbs are benefitting from our terrible tax structure. We need to attract jobs to the city.” — Philadelphia City Councilmember Isaiah Thomas

“We no longer compete economically just with New York and Boston and Washington, D.C.,” says Councilman Isaiah Thomas, a pro-growth progressive. “We compete with Conshohocken and Ardmore and Jenkintown.” In other words, the combination of a shorter commute, a de facto pay raise, and better schools finds us essentially subsidizing population loss, particularly among those we need to be most invested in the city: Young middle-class families. And don’t get me started on the loss of businesses — now Jefferson Health, with its 2,000 Center City employees, is eyeing relocating to Lehigh County — and the failure to recruit new ones. Well, now comes a proposal that seeks to make Philadelphia a more economically competitive and progressively-taxed place to live and work: The Philadelphia Tax Reform Commission’s interim report, entitled Jumpstarting Jobs: A Report on Investing in Tax Reforms and Inclusive Strategies for a Thriving Philadelphia. Past tax commissions have focused almost exclusively on tax rates. This one includes some ideas for actually investing in workers and creating a pathway to the middle class. Among its recommendations:

• • Gradually eliminate BIRT, the city’s business income and receipts tax, which is essentially a double tax that levies both net profits and gross revenues.
  • Lower the aforementioned regressive wage tax to less than 3 percent over 10 years.
  • Lobby Harrisburg not just for a $15 Philly minimum wage, but also for an exemption from the Commonwealth’s “uniformity clause” that prohibits applying differing tax rates to different taxpayers. That would allow for taxing what can’t move — real estate — at a higher rate than what can (people), as Commission members Jerry Sweeney and Paul Levy have long argued.
  • Explore a 20-year tax abatement to spur conversion of distressed and vacant office buildings for other uses.
  • Form a pro-growth Jumpstart Fund, calling for “an amount equal to 10 percent of the BIRT tax rate reduction into a special investment fund to supercharge business and job growth,” the report reads. “For instance, if the total BIRT rate reduction investment amounts to $30 million over a given period, the Commission recommends allocating $3 million of that to the Jumpstart Fund, with the remainder to businesses in the form of a tax reduction. The Commission additionally recommends that the City partner with the business community and institutional organizations to solicit contributions to match the BIRT revenue funds.”

These last provisions are key, as they represent real investments in Philadelphia’s economic future. As one commission member told me, if you get private sector and philanthropic matches, you could be looking at in excess of $100 million to be spent on serious workforce development for low-income workers. We’ve written about the good work of the Skills Initiative — recently given $4 million by billionaire philanthropist MacKenzie Scott; imagine something like that, but turbocharged in mass numbers citywide.

Not a supply-sider among them

The Commission was the brainchild of Council President Kenyatta Johnson, and is co-chaired by author, venture capitalist and former State Secretary of Banking and Securities Richard Vague and managing director of Public Financial Management Matt Stitt. Johnson charged them with thinking boldly and their interim report is the start of an inclusive, pro-growth agenda. But not everyone sees it that way, which is where we revisit the conundrum of applying national progressive shibboleths to our local politics. Upon its release, one advisory committee member to the Commission reacted to the report by telling The Inquirer, “we won’t let City Hall take us back to austerity budgets.” Well, that’s divorced from reality. Keep in mind: Mayor Parker’s current budget is $6.4 billion; Mayor Nutter’s last budget was $3.8 billion. What kind of return have we seen on that investment? Austerity long ago left the building. Then came a scurrilous column by Lance Haver, once the city’s Consumer Advocate. I hesitate to give it air because it’s not only mean-spirited but so poorly thought out. Entitled Does Philadelphia Have Its Own Version of Elon Musk?, Haver shamefully equates the philanthropist Vague, who does no business with the City, with the conflicted whack job waging chaotic war on everyday Americans. Full disclosure: A decade ago, Vague was a founding donor to The Citizen. Since then, as we’ve chronicled, he has challenged economic orthodoxy in a decidedly progressive way, arguing for widespread debt forgiveness for those struggling to make ends meet. Haver’s connecting of Vague with Musk actually belies a bigotry, given that the only thing the two men share is wealth.

Here’s a stat for ya: Philadelphia’s poor non-homeowners are saddled with our highest tax burden. The best way to reverse that is to make more people less poor.

Haver calls the Commission recommendations “trickle-down economics” but he misunderstands the term, which refers to tax breaks for the wealthy in the hopes that the benefits will “trickle down” to workers and the poor. You know, the whole rising tide lifting all boats line of thinking that, indeed, failed in the Reagan 80s. Read the interim report, though; it recommends the precise opposite. If there is a national historic comparison, it’s Clintonism in the 90s, featuring strategically targeted tax cuts and smart investments, which spurred historic progressive growth. Peruse the makeup of the Commission; not a Milton Friedman supply-sider among them. Instead, there’s the Economy League’s Jeff Hornstein and the diverse Chambers of Commerce — African American, Hispanic, Greater Northeast, Asian American, and LGBTQ+, respectively. “I’m a progressive, I want to see change,” Councilmember Thomas, a stalwart supporter, told me. “Economics should not be partisan. Right now, the suburbs are benefitting from our terrible tax structure. We need to attract jobs to the city. That’s not Reaganism. What frustrates me is, why can’t we just disagree? If I think it’s a good idea to lower the BIRT and invest in small businesses, I’m a sellout? My eyes and my ears and my lived experience are not enough?” What Thomas is reacting to is the progressive sanctimony that, arguably, cost his party the White House. Here’s a stat for ya: Philadelphia’s poor non-homeowners are saddled with our highest tax burden. The best way to reverse that is to make more people less poor. You do that by creating jobs and training your workforce to meet the opportunity. I’m told that Sweeney, long an evangelist for growing jobs, was the loudest voice pushing for a bold plan, some of which Commission members say is still to come. This is, after all, just the interim report. Yes, Sweeney is a successful developer — so it would be easy for progressives to dismiss him as just another plutocrat. Except that for a decade now he’s been saying let’s tax what can’t move — real estate. “Tax me more,” in other words — kind of the literal definition of local patriotism. Understandably, City Finance Director Rob Dubow, a naturally conservative numbers guy, was the voice of caution. The Commission debates often came down to putting capital at risk — investing in job growth — versus tweaking rates and essentially maintaining the status quo. In the end, all Commission members signed on to the interim plan while they continue to explore further strategies, like — as I outlined a couple of weeks ago — really stress-testing the efficiency of local government. (How flawlessly run do you think our $6.4 billion organization is?) There’s also the question of bandwidth. The Mayor has laudably tackled long-ignored big challenges, from Kensington to the housing crisis. Will she have the political capital to spend on a tax and jobs program that challenges progressive conventional wisdom and grows our pie instead of forcing us to fight over ever-shrinking slices? The Commission recommendations are a good start. What’s clear is that Philly’s unfair tax structure has helped make the city a lower-tier economic player, on metrics from GDP to competitive tax rates to the dearth of private businesses. You think it’s merely coincidence that, of our top 10 employers, only one — Comcast — is a for-profit business? Michael Forman, founder of FS Investments and the Equity Alliance (and a supporter of The Citizen), is fond of saying, “We can’t increase Black and Brown jobs if there are no businesses and no jobs,” and I thought of him the minute I heard the news that Jefferson Health might be the next to go. His observation is a good reminder to the progressives who are jaded by all the mishegoss on the national stage, on a couple of levels. A city with 380,000 of our neighbors below the poverty line and countless others striving for middle-class life ought not be satisfied with a system of regressive taxation. And even if you harbor resentment for the haves, you don’t serve the have-nots by acting from such a bad place, karma-wise. The best social program is still a job, and you can’t have jobs without employers.