The latest budget deal between Mayor Street and City Council leaders calls on Council to enact an ordinance delaying implementation of the Working Families Wage Tax Rebate for two years. This rebate was the last major proposal introduced by the late Councilman David Cohen.Please come to Council Committee of the Whole hearing on this proposal on Thursday, June 1 at 9:00 am, to protest this ordinance. You would like to testify, let me know at MarcStier@stier.net and I will tell you how to sign up.
The Program
The Working Families Wage Tax Rebate is program that gives a wage tax rebate to families of 4 with an income of less than $30,000. The program is supposed to go into effect gradually, with a .5% rebated in Fiscal 2010 which begins in July 2009. The rebate is supposed to increase up to 3% in subsequent years.
Mayor Street does not claim that delaying the Working Families Wage Tax Cut is needed to balance the budget of the city next year (2007) or the year after (2008) or the year after that (2009). The sole announced purpose of delaying the Working Families Wage Tax Cut is to be able to present a five year budget plan to PICA that is balanced in 2010 and 2011.
A delay in the Working Families Wage Tax Rebate is unnecessary, unjust, and self-defeating.
A delay in the Wage Tax Rebate is unnecessary because the Mayor’s Five Year Plan dramatically overestimates the net cost of Wage Tax Rebate.
1. The Five Year Plan plan assumes that everyone eligible for the rebate program will make use of it. This is highly unlikely. After more than 20 years, no more than 75% of those eligible for the Federal Earned Income Tax Credit apply for rebates on the income taxes. The percentage of Philadelphians who apply for a rebate on the wage taxes in the first is likely to be quite low. If only 50% of those eligible apply—which is a very high estimate—the program will cost the city only $7.2 million in Fiscal 2010 and $15.7 million in fiscal 2011.
2. The Five Year Plan does not recognize that the Wage Tax Rebate will stimulate the economy and thus bring in additional tax revenues, reducing the impact of the rebate on the city treasury. Our best estimate is that at least two-thirds of the rebate will be spent in the city. Our conservative estimate is that this will bring in at least $2 million in additional tax revenues.
3. The Five Year Plan does not recognize that the Wage Tax Rebate will also reduce city expenditures. Change in the economic well being of low income families can produce social problems of all sorts that then require the city to provide social services. For example, the Wage Tax Rebate will help families on the verge of homelessness to stay in their homes, reducing the need for expenditures on homeless shelters.
Taken together, the net costs of the Wage Tax Rebate is much less than projected in the five year plan.
A delay in the Wage Tax Rebate is unjust because it puts the burden of balancing the five year plan on the backs of those least able to afford it.
Even before the city began to reduce business taxes, our tax structure was among the most regressive in a comparison with fifty one other large cities in the United States. As we reduce business taxes, the relative burden of paying for city services will fall even more heavily on those with low incomes. The Wage Tax Rebate is a small step towards making our tax structure more fair.
In a budget over $3 Billion, there are surely other ways to close a two-year gap of about $20 million than to delay the Working Families Wage Tax Rebate.
A delay in the Wage Tax Rebate is self-defeating because it undermines other efforts to stimulate economic growth, especially in our commercial corridors.
The Mayor is proposing new initiatives to stimulate economic growth in commercial corridors, and CDCs and other community groups are devising new paths to economic revival, in our neighborhoods. The Working Families Wage Tax Rebate is an ideal compliment to these efforts. For example, streetscape and business façade improvements and loans to new business start-ups in low income neighborhoods will have a much greater impact if we can give the residents of these neighborhoods more purchasing power.