Hearings on the 3 year delay of the David Cohen Working Families Wage Tax Program will be held tomorrow morning at 9:00 am in Council Chambers.
In the last few days a loose coalition has put together what looks like a compelling reason not to delay the implementation of the program.
It turns out that the administration has miscalculated the savings of a delay by about 500%. The Mayor’s budget presupposes that everyone eligibile for the program will take advantage of it, thus costing the city 47 million in fiscal 2010 and 2011. But that is a crazy assumption. In fact only 78% of Philadlephians take advantage of the federal EITC and one takes advantage of that program simply by filing a tax return. The Wage Tax Rebate program requires that one know about the program, acquire the right forms, and then fill them out.
Where similar programs have been adopted, in San Francisco and Denver, the results has been a slow startup. Only 37% of those eligible for the program in San Francisco took advantage of it the first year, despite a massive publicity campaign supported with private donations. (H&R Block donated a million dollars alone.) In Denver, only 17% of those eligible took part in the program. We are not planning a publicity campaign for the program here. Philadelphians take advantage of the federal program at lower rates that people who live in San Francisco. And, because our program is phased in over six years, the rebates–and thus the incentives to apply for them–will be pretty low for the first few years. So our results are likely to be close to that found in Denver.
If only twenty perecent of Philadelphians take advantage of the program in the first two years, the cost will be not $47 million but less thatn $10 million. In a five year budget of $15 million, that is a rounding error.
Of course, I haven’t mentioned the moral issue of whether we should be trying to create a fairer tax system. And, by the way, the fairness issue applies especially to owners of small, unicorporated businesses. The rebate will reduce the net profits tax which unicorporated businesses pay. Why shouldn’t their taxes go down when we are reducing the tax rate for incorporated businesses?
This issue is a real test of our political system. Supposedly, the Mayor cut a deal with Council leadership. In return for their support on this issue and a few others that are probably more important to him, the Mayor agreed to a budget that funds some pet projects of Council members (many of them are good projects, by the way.) The question is whether Council Members are willing to step away from an agreement that is predicated on mistaken assumptions about the costs of the wage tax rebate. It is one thing to trade for a fire house that will create a five year deficit in return for agreeing to a Mayoral initiative that will reduce that deficit. But why make that trade if the Mayoral initiative won’t really reduce the deficit?
After a day of lobbying council members, it looks to me right now that we will have between four and six votes against delaying the Wage Tax Rebate. We need seven votes. I think we can firm up the two uncertain members and pick up one more. You can help by contacting your council person. Use the Hallwatch service . Or, even better, come to the hearing tomorrow at 9:00 in Council chambers.