One of the major problems with politics in Philadelphia is that it is focused just on Philadelphia. However many of the most important problems we face are regional in nature. Our public transit system is clearly a regional problem. So is economic development and job growth. It is not just Philadelphia but the whole region that has been growing slowly. And many environmental problems, especially the loss of open land, are regional as well.<\/p>\n
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Why Regional Cooperation is So Hard <\/strong><\/p>\n Solving these problems requires regional cooperation.\u00a0But regional cooperation is tough.\u00a0The only government capable of leading the way to solutions is the 800 pound gorilla of the region, the City of Philadelphia. A critical barrier to such leadership\u2014aside from the inability of our political elite to lead on any issue, is that suburbanites will not trust leadership from the city until we reform our politics. (That is not to say that pay to play and other forms of corruption are never found in the suburbs. They certainly are.)<\/p>\n As a first step towards a more regional economy, I want to propose a package of tax policies that might go a ways towards improving the regional economy. I do so tentatively, as the ideas I put forward require a great deal of further thought and need to be spelled out in detail. But I do want us to start thinking of ways to knit this region together.<\/p>\n Towards a Tax Swap <\/strong><\/p>\n In brief, my suggestion is that we create a tax swap. On one side, we institute three regional tax funds, one to pay the local share of public transit costs, one to subsidize local arts, cultural, and entertainment institutions such as museums, theaters, the Kimmel Center, and the sports arenas, and one to support our existing parks and new, open spaces initiatives. These three regional taxes would take a significant burden off the city, which now pays 80% of regions local share of SEPTA costs, which has borne all the burden for subsidizing local arts, cultural, and sports institutions, and which spends far more on parks than other local governments. Transit Funding and the Tax Swap <\/strong><\/p>\n Now is the time to consider such a tax swap because a central part of the Transit Reform Commission\u2019s proposal is to create new regional tax dedicated to public transit. As I will explain in a moment, there is a good argument for this proposal. But I am afraid that it will go nowhere unless the suburbs receive something in return for agreeing to the tax, such as a reduction in the commuter wage tax. And while we are going in that direction, we might as well be bold and create three regional tax funds in return for substantially reducing the hated commuter tax<\/p>\n Why the Suburbs Should Subsidize Transit, Culture, and Parkland <\/strong><\/p>\n The rationale for subsidizing both transit, and art and culture, and parks with a regional tax is fairly straightforward. Public initiatives in all three areas benefit the entire region. Transit provides the means by which hundreds of thousands of people not only get to work, but get to work where their skills are most needed by employers. The large, mobile labor market created by our public transit system\u2014and by the roads that would be inundated if the transit system collapsed\u2014increases the productivity of most businesses in the region and thus spurs development in both the city and suburbs. For that reason\u2014and because it reduces pollution and suburban sprawl throughout the region\u2014public transit benefits everyone, whether they use SEPTA or not.<\/p>\n Much the same could be said for our arts, cultural, and sports institutions. They obviously serve all of us for whom a concert or a visit to an art museum is a source of joy and spiritual enrichment. But they also serve everyone else as well, because they bring new businesses, new residents, and millions of visitors to the region. One of the great attractions of the Philadelphia region is our increasingly vibrant arts and cultural scene. The Greater Philadelphia Cultural Alliance has projected that cultural organizations bring more than $1 Billion to the regional economy each year. And that, of course benefits both the suburbs and the city.<\/p>\n Parks and open spaces are also critical to the entire region. While some parks serve people in one municipality, people travel in from suburbs to city and from city to suburbs to enjoy the parks and open land in the region. Preserving our park lands and creating more open space helps protect the water we all drink and the air we breathe. And preserving open spaces in the suburbs will help concentrate development in established communities and direct more development to the city, which as explain below, will benefit the whole region.<\/p>\n Given that arts and culture, public transit, and parks and open sapces benefit the whole region, they should be paid for by the whole region. It is unfair that Philadelphians pay the lion\u2019s share of the local costs of SEPTA as well as all the costs of subsidizing the Art Museum, the Kimmel Center\u2014and the Linc and Citizen\u2019s Bank Park as well. Those costs should be paid by everyone in the region. And, if they were spread across the whole region, then the cost per household would be relatively minor.<\/p>\n What\u2019s Wrong With the Commuter Wage Tax? <\/strong><\/p>\n But why, in return, should we Philadelphians give up the wage tax on commuters? The answer is that it is unfair to suburban commuters, harmful to the economy of both city and the region.<\/p>\n The rationale for the commuter tax is that commuters benefit from many city services\u2014from the streets we build to the health inspectors that (occasionally) visit our restaurants to the snow removal that enables people to get to work and so on. Since they benefit from city services, commuters should pay some part to maintain them.<\/p>\n The Commuter Wage Tax is Unfair <\/strong><\/p>\n This is a reasonable proposition, up to a point. The trouble with it is that, as we have just seen, it is not just commuters from the suburbs who benefit from the city but all suburbanites, including both those who come into the city for recreation and those who never come into the city, but benefit from the economic activity that would not occur without the city and its services. It is fairer to tax all suburbanites for these benefits than to tax only commuters.<\/p>\n The Commuter Wage Tax Harms the City and the Region <\/strong><\/p>\n The commuter wage tax also harms the economy of both the city and region because it discourages businesses from locating within the city as opposed to the suburbs (as does the BPT, but that is another story). Now it is obvious why we in the city want businesses to locate here: they pay taxes and create jobs not just for suburbanites but for residents in the city.<\/p>\n What might not be so obvious is why the suburbs should want businesses and residents to locate in the city as well. But, in fact, they should want that. The explanation has to do with what has historically made cities important engines of economic growth. I don\u2019t want to go into all the gory details here. But the basic argument is fairly simple.<\/p>\n Why Cities Still Matter <\/strong><\/p>\n Cities have always been centers of economic energy because innovation tends to occur when businesses in a group of related fields locate in one area. This is true for many reasons. \u00a0But the basic idea is that innovation, which most often takes place in small businesses, is spurred when these businesses are close to their competitors, their suppliers, the businesses to whom they sell their products, and the providers of business services on which they rely, including lawyers, accountants, real estate developers and architects.<\/p>\n Agglomeration Economies<\/strong><\/p>\n Economists call the efficiencies that come about when businesses that need each other are close by agglomeration economies. And, while some folks think that internet communications can replace personal meetings in the business world, businesses in the most innovative fields prefer not buy from suppliers\u2014or even hire providers of ancillary services like legal work or advertising or architectural work\u2014when they have only internet and phone contact with these people. (Would you go to a doctor or lawyer or an architect with whom you only communicated by email and phone?)<\/p>\n Agglomeration economies explain why the software industry is concentrated around route 128 in Boston and Silicon Valley and why so many teaching hospitals and pharmaceutical companies are found in the Philadelphia region. It explains why we have so many major law firms concentrated in Center City. And, on a smaller scale, agglomeration economies explain why jewelers like to locate on jewelers row.<\/p>\n A Strong Central City Creates a Strong Regional Economy<\/strong><\/p>\n The concentration of businesses and their suppliers in one area tends to make them all more productive. That allows them to develop new products and reduce prices on old ones. It thus drives sales and profits up and allows businesses to expand and add jobs. At the same time, agglomeration efficiencies keep prices down for consumers, especially within their own region. (Think how much more many goods would cost if we could not buy them from a number of suppliers in the Philadelphia area.)<\/p>\n Detailed studies of the economic life of cities, including Philadelphia, suggest that a strong central city economy tends to make regional economies more efficient. This reduces the cost of living in the whole region without sacrificing wages. It encourages people to move into the city and region. And it also tends to lead to higher home values\u2014which is a good thing for most people in a growing economy (although the poor have to be protected from increasing property taxes.)<\/p>\n So reducing the commuter wage tax is likely to encourage businesses to move into the city, providing tax revenues for the city and, hopefully, making our regional economic more productive.<\/p>\n (I first learned the argument I\u2019ve sketched above about the importance of agglomeration economies from reading Jane Jacobs, The Economy of Cities and Michael Piore and Charles Sabel, The Second Industrial Divide. The argument that reducing the commuter wage tax would spur economic growth in Philadelphia was, to my knowledge, first put forward in an important article by Robert Inman, \u201cShould Philadelphia\u2019s suburbs help their central city<\/a>?\u201d<\/p>\n Some Numbers <\/strong><\/p>\n How much money could the city save, and how much could we reduce the commuter wage tax, if my tax swap proposal were adopted? The city\u2019s budget documents are so lacking in detailed, transparent information, that it is not easy to answer these questions. We know from SEPTA documents that the city\u2019s share of the annual local cost of SEPTA is $55 million. The city remains responsible for cleaning some transit stations at a cost I cannot find in our budget documents.<\/p>\n I am told by a reliable source that the city spends about $25 million per year for debt service and other costs related to the Linc and Citizens Bank Park. (That number cannot easily be found in any official documents, by the way. There is also the cost of all those police officers who regulate traffic going to and from the sports arenas. They should be paid by the regional fund as well.<\/p>\n The amount the city spends on the Art Museum or other arts and cultural institutions is also not easily found in city budget documents. I have heard that $2 million per year goes to the Art Museum but have no idea whether and how much the city spends to support other arts and cultural institutions and events each year. How much is the city subsidizing the move of the Please Touch Museum into Memorial Hall? How much do our various July 4th celebrations\u2014which draw many suburbanites\u2014cost? I do know that a recently passed bond issue to provide new capital funds for cultural institutions and commercial corridor improvements is going to cost the city about $11 million per year with, I believe, about 2\/3rds of the money going for cultural and arts institutions. (I would argue, by the way, that it would make much more sense for the entire region to provide substantial new annual funds to the Art Museum and other cultural institutions rather than for Philadelphia to go deeper into debt by means of this bond issue.)<\/p>\n Just to continue the conversation, let\u2019s assume that in total, the city spends $150 to $200 million on public transit and on arts, cultural, and sports institutions and events, and on parks. According to a report by Larry Eichel in the Inquirer (April 24, 2006), the commuter tax wage tax brings in $520 million. So swapping the city\u2019s spending on transit, arts, and sports for a commuter tax reduction would allow that tax to be reduced by almost 40%. Gambling revenues are supposed to be devoted to reducing the wage tax in Philadelphia. When they kick in\u2014and remember that we get those revenues whether there are casinos in Philadelphia or not\u2014we might be able to reduce both the resident and commuter wage tax by another 20 to 30%.<\/p>\n That is a start, although I suspect that much deeper reductions in the commuter wage tax would help both the city and the entire region.<\/p>\n In the article I mentioned above, Robert Inman argues that the entire region should take on much of the burden of coping with the huge costs for the city created by our extraordinarily high poverty rates. The United States is the only major liberal democracy that puts this kind of burden on local governments. Reducing that burden by having the state take over these costs would more than offset a complete elimination of the commuter wage tax. And that, Inman claims, would benefit the whole region a great deal. I think Inman is correct, but right now I don\u2019t see the General Assembly agreeing with the idea.<\/p>\n A Possible Objection <\/strong><\/p>\n One possible objection to my proposed tax swap is this: If commuters do not have to pay the wage tax when working in the city, while city residents do, won\u2019t this give employees who work in city businesses a reason to stay in the suburbs? Or, even worse, won\u2019t some city residents leave the city and commute to work?<\/p>\n While this problem is of some theoretical concern, I don\u2019t think it is a real issue. First, most economists believe that, at least at the upper ends of the wage scale, a significant portion of the wage tax is paid by businesses who have to adjust their wages to compensate workers for the tax. So workers in businesses located in the city tend to receive higher salaries than workers in business located in the suburbs. In addition, some of the suburbs have wage taxation now, albeit at no more than a 1% rate and, as I mentioned above the city wage tax will drop as gambling revenues come in.<\/p>\n Second, businesses right now tend to have a number of economic incentives for leaving the city or not locating here in the first place. These include not just business and wage taxation but other factors that our government should address, such as the red tape that stands in the way of opening a business and the uncertain and the often glacial pace of real estate development. But residents do not have the same incentive to live in the suburbs as opposed to the city, especially if they work in a business located in the city. That is especially true for homeowners. When taking into account property taxes, which are higher in the suburbs; the cost of housing, which is also higher in the suburbs; and the cost of time and money commuting to work from the suburbs to the city, city residents who work in the city are not really at much of a disadvantage as compared to suburbanites. The quality of schools is, of course, the one area where city residents suffer. But the amenities of living in the city\u2014and especially the proximity to our arts and cultural institutions and our restaurants\u2014to some extent make up for our less attractive schools. And our schools are not an issue for singles and couples before and after they have school age children or for those whose incomes are high enough that they can afford the wonderful private schools found in the city.<\/p>\n Taking all of this together, there is little reason to think that many city residents will flee to the suburbs if their jobs remain in the city. \u00a0There is good reason to think that if businesses move into the city, some of their new employees will locate within the city. And if the tax revenues new businesses generate help us improve city services, and especially our schools, this result will be even more likely.<\/p>\n Conclusion<\/strong><\/p>\n So a tax swap along the lines I\u2019m proposing might be a tremendous benefit to the city and its suburbs. It would give us the funding we need for our public transit system and arts institutions. And it would encourage businesses to move into the city.<\/p>\n Can we make this happen? Only if leadership comes from Philadelphia. Perhaps our next Mayor will put this idea on his agenda. I do know of one candidate for City Council who will take it seriously.<\/p>\n","protected":false},"excerpt":{"rendered":" One of the major problems with politics in Philadelphia is that it is focused just on Philadelphia. However many of the most important problems we face are regional in nature. Our public transit system is clearly a regional problem. So is economic development and job growth. It is not just Philadelphia but the whole region that has been growing slowly. And many environmental problems, especially the loss of open land, are regional as well. 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\nIn return for these three new regional tax funds, I suggest that, depending upon how much money the regional transit and culture taxes save us, the city should substantially reduce and gradually eliminate the wage tax for suburbanites who work in the city.<\/p>\n