What’s the Rush? Save the Cohen Wage Tax Rebate!

One of the last accomplishments of long time progressive Councilmember David Cohen—a rebate on the wage tax for those with low incomes—may be repealed tomorrow. It shouldn’t be.

There are good policy arguments both for and against the wage tax rebate. I’ll come to some of them in a moment. But, frankly, at the moment those arguments are secondary. The key reason not to repeal the legislation tomorrow is that the decision to put off AVI for a year means that Council is going carry out a broad examination of taxation in the city next year. The Cohen wage tax rebate is not scheduled to go into effect until 2016 anyway. So there is plenty of time to reconsider it as we think through the future of taxation in Philadelphia.

Any city like Philadelphia has to balance considerations of progressivity and economic growth. While, progressive taxation has very little negative impact on economic growth in the nation as a whole, and relatively little in states, it can have an impact on cities. If city taxes fall too much on people with higher incomes and businesses, then they can move with their feet.

On the other hand, when a quarter of our city or more is poor, a reduction in taxes targeted at those with low incomes really helps people who are struggling at fairy low cost.

AVI, when implemented, will make our taxes more progressive and help low income folks. Its’ impact might be greater than a targeted wage tax cut. So, had we implemented AVI this year, I might have been less concerned about losing the Cohen wage tax rebate.

But, now that we are waiting for AVI—and while we are uncertain whether it will ever be implemented in a progressive fashion—here’s good reason to keep the Cohen wage tax rebate on the books and reconsider it as part of a complete overhaul of our taxes.

One last point about the virtues of the Cohen wage tax rebate: Given that our tax system is, on the whole, regressive, the Cohen wage tax rebate is a way to add a little fairness that actually helps our city’s economy, especially in the neighborhoods.

To see this consider that a Keystone Research Center Report showed that : (1) only about 63% of an across the board tax cut would go to city residents. The rest would go to commuters; (2) 20% of that 63% would go to the federal government in the form of higher income taxes because high income Philadelphians lose some of their wage tax deduction; (3) only 70% of the remaining amount would be spent because Philadelphians on average save 30% of their marginal income. Add it all up and only 25 cents per dollar of any across the board tax break is spent in the citiy.

On the other hand, (1) 84% of a wage tax rebate to low income residents goes to city residents rather than commuters; (2) almost none of it is lost to higher federal taxes; and (3) low income residents Philadelphians save only 5% of their marginal income. Thus 60 cents of a dollar of a wage tax cut targeted at low income residents is spent in the city. Local businesses, especially in the neighborhoods, benefit as a result.

There are lots of other considerations, both for and against the Cohen wage tax cut. The key point for tomorrow however, is that there is no reason to rush. Let’s have a real debate about his policy idea in the context of a broader debate about tax policy in the city. Let’s not rush to repeal this legacy of one of the great leaders of our city.

So, give your member of Council a call and ask him or her to vote against repeal of the Cohen wage tax cut tomorrow. You can find contact information for council here: http://www.phila.gov/citycouncil/CouncilMembers.html

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