Tuesday, April 26, 2005

Philadelphia and the BPT: Imperfect Together

The Philadelphia Inquirer had an interesting story this weekend about Philadelphia’s wage tax. It talked about recent wage tax collection data and the story it tells; while employment and population continue to shrink (albeit slowly) incomes in Philadelphia are going up. The last four years for which the City has complete data – 2001 through 2004 – indicate that private-sector jobs in Philadelphia decreased approximately 4.3 percent. The wage tax rate paid by residents and commuters also went down, as it has annually since 1996. However, aggregate wage tax revenue increase during that same period by over $60 million. These figures suggest that the “Philadelphia story is no longer one of straight-line loss in employment and people, but rather of an evolving city, gradually becoming home to higher-paying jobs and higher-earning residents.” However, Philadelphia's recent gains are apparently concentrated in sectors dominated by non-profit employers such as colleges and hospitals. Other industry sectors are either static or decreasing in Philadelphia, but growing elsewhere in the region. Firms that create such jobs are for-profit and subject to the City's tax on gross receipts and profits – the Business Privilege Tax. This tax receipt data suggests that such for-profits are apprehensive about investing in Philadelphia. What’s the solution? Continued incremental wage tax reductions and a wholesale reengineering of the business privilege tax, with a gradual phase out of the gross receipts portion. Philadelphia Forward and about a million other people have been talking about it for years; the question has been asked and answered, with anecdotal and empirical evidence proving the point over and over again.

6 comments:

DanielUA said...

I am not sure a straight line can be drawn from lack of a BPT for non-profit sectors, and why they are growing. In fact, given that education and health care seem to be booming everywhere, that seems a little too simple for me.

Anonymous said...

You need to look at the Philadelphia region as a self-contained entity; if there's economic development in particular sectors that's happening in the suburbs and not here in town, doesn't the tax structure and the obstacles it presents become an obvious place to look for nexus?

DanielUA said...

Yes, but then how come places with very little in the way of city taxes still are losing business to their suburban neighbors? Again, this seems a little too simple.

Friedman said...

Dan - I think the comparison needs to be between Philadelphia and its suburbs, not another City and their suburbs. What other cities with really low tax burdens that are similarly situated to Philadelphia are losing out to their suburbs? Detroit isn't a good example here, not offense to them, but they're not in our league in terms of being a vital, cosmopolitan urban area.

DanielUA said...

Yes, but you simply cannot ignore the reality that suburbs everywhere are booming, right?

So we are growing in education. It is really great. But, Penn made the decision long ago that they were not moving to Valley Forge, and that they had to expand within Philly. And, as with many colleges, business is good, and they understand the need to build up a neighborhood around them. This has helped Philly immeasurably, and has probably been a driving force in Temple and Drexel's attempts at expansion.

All I am saying is that some things have nothing to do with taxes. Businesses make many decisions on how and why to locate- things that are likely more important than taxes: transportation infrasructure, public ameneties, and access to an educated workforce. Taxes count as well, but, I dont think they are number one, by any stretch. It simply has never been proven. So, we just need to be careful when looking at correlations (ie, we are growing in education) and assuming causal effect. (ie, if other industries had to pay lower taxes, they would expand, as well.)

JD said...

I think if you look at Bala you'll find several businesses - including many Philadelphia radio and television stations - who made their location choice almost entirely on taxes.

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