We all know economic growth and job creation are central to making our city a better place to live. Over the last few years, the debate about economic growth has centered on the tax reform issue. That has been unfortunate for two reasons. The first is that, while tax reform may be critical to economic growth, we have not focused enough on other means of creating new businesses and jobs. Second, progress on reforming taxes has been slow because we have focused too much on business taxes and because of sharp disagreements among political activists about whether and how fast the Business Privilege Tax (BPT) should be reduced.
But a funny thing happened in a public forum a few months ago on taxes.
Brett Mandel of Philadelphia Forward has been a main advocate of gradually eliminating the Business Privilege Tax (BPT) in order to stimulate economic development and job growth in the city. I have been part of a group, One Philadelphia, that has opposed reductions in the BPT and proposed, instead, other strategies for creating economic development and new jobs: better education, new efforts to reduce crime, and investments in our commercial corridors.
And yet, in an hour debate on Radio Times with Marty Moss-Coane in January, we found ourselves agreeing much more than we disagreed.
We agreed that the problem with taxation in the city is not just how much we tax but how we tax. We need to adopt smart taxes that are as fair and progressive as possible, that bring the city sufficient revenues to provide critical services and make strategic investments, and that do not hinder economic development. And we both said that the BPT is not a smart tax, that it should be gradually reduced and, if possible, eliminated, and that doing so would help attract and retain businesses to the city.
We also agreed that the job-creating effects of reducing the BPT would be substantially greater if our schools were improved and crime reduced. We both called for investments in our commercial corridors to create new small businesses and retail jobs. We both acknowledged that the city is facing upcoming problems in paying for the health care of city workers and meeting its pension obligations. We both recognized that as our economy grows, property values will rise, and we agreed that low- and moderate-income residents should be protected from dramatic increases in Real Estate Tax bills, perhaps by allowing people to put off some portion of their real estate taxes until they sell their homes.
So how do we reduce taxes and do everything else the city needs to do?
Here again, we found broad areas of agreement. We both believe that political reforms that eliminate pay-to-play would reduce the graft tax and save the city millions. Other political reforms that allowed us to depoliticize the workings of government and adopt modern management tools would save even more.
We might still need new revenues to do all the city should. We both think that reductions in the BPT will bring in new revenues. We disagree in that Brett thinks this will happen more quickly than I do. But we both acknowledged some uncertainty about this. As they say, predictions are hard especially about the future. So we both thought that it would be a good idea to raise taxes that are more progressive and less detrimental to economic growth than the BPT to make up for any revenues lost due to BPT reductions. If these new revenues are not needed, we could either reduce the BPT more quickly and / or invest more in other economic development strategies.
We need to do more study about what taxes to raise. It might be a good idea to convert our wage tax into a personal income tax. This would be more progressive and much less economically detrimental of taxing capital than the BPT. And, as gambling revenues come in, personal income tax rates would be reduced dramatically. A personal income tax might, however, create problems for senior citizens. So this needs more study.
We did agree that it would a good idea for the Commonwealth of Pennsylvania to eliminate the uniformity clause. Doing so would allow us to do what most cities in the country do, tax commercial real estate far more heavily than we tax residential property. This would allow us to tax capital in a way that has a minimal effect on job creation. Eliminating the uniformity clause would also allow us to reduce the wage (or personal income tax) for low income residents in a more effective way than is possible today.
We both think that moving toward a land tax, in which city would reduce taxes on buildings and increase taxes on land, would encourage the sensible and efficient use of property in the city and also lower tax burdens for most city homeowners.
In other words, the two of us think that the time has come for Philadelphia to adopt a comprehensive package of reforms drawn in part on the blueprint outlined by the voter-established Tax Reform Commission and in part on ideas that have emerged since the Commission issued its report. A comprehensive approach that takes the best ideas of progressives on all sides would be not a compromise but a balanced program of innovative ideas that, because they are smart and creative, attain the goals we all want: tax reductions and selective investments that encourage economic development and jobs and economic opportunity for all Philadelphians.
However, while we agree on the rough elements of a sensible economic plan, we fear that politics as usual is not going to bring us the innovative public policy this city needs. Neither our current Mayor nor our City Council has shown the capacity or the courage to engage in far-reaching and comprehensive economic planning.
We strongly believe that the whole package would be better than its parts taken alone. So our final agreement is that, if our city is to as bright an economic future as possible, in May 2007, the citizens of this city are going to have to have the foresight to choose a Mayor and City Council that will break the mold of Philadelphia politics.
Note: Brett Mandel does not endorse political candidates and thus has not endorsed me or any other candidates for City Council.