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From the November 16, 2001 print edition
Philadelphia Business Journal: No to tax hikes; yes to tax reform
Opinion
Empty storefronts. Vacant properties. Fleeing businesses. Economic gloom. That was the Philadelphia story for too long, a script written in part as a result of its inordinately high taxes on businesses.
Now, with the economy crumbling and much work left in Philadelphia's ongoing recovery, any thought to raising an already-steep tax burden should be discarded immediately.
But raising local taxes, either corporate or individual, is exactly one of the remedies some in Harrisburg are considering to fix Philadelphia's battered public school system, following the release of a report by Edison Schools Inc., a for-profit firm hired by the state.
It's the wrong approach, folks.
Even in the go-go '90s, Philadelphia suffered a continuing decline of businesses, losing close to 65,000 jobs. A period of wage-tax cuts beginning in 1995 helped a little. But, for the most part, damage to the city's economic base is long from being fixed.
A 1998 study by Vertex Inc. ranked Philadelphia as the most taxing city in which to do business -- with an average of $1.39 million in taxes levied on a hypothetical company with 125 employees, $15 million in annual revenue and $1.5 million in profit. Another more recent study found that middle-income city families spend 60 cents more on each tax dollar than in the suburbs; businesses, 29 cents more.
Some companies flee because of the tax burden, while others say they're forced out because it's impossible to attract employees to a city with an education system in crisis.
Those who would impose higher taxes say it's the only way to provide a long-term solution for the financial straits that the schools face: The district gets the money it needs, fixes the schools, and prepares students for college and life. In short, everyone wins.
Not so. Here's a more realistic scenario: Already overly taxed businesses reach their breaking point and abandon Philadelphia. The city's tax base shrinks, and the schools, in turn, suffer.
So, what's a better answer? Robert P. Inman, professor of finance and economics at the Wharton School, has long suggested a land tax.
City Controller Jonathan Saidel recently produced a raft of ideas for reducing the tax burden.
Earlier this week, a bipartisan House committee on education suggested raising the state income tax as a solution to state funding discrepancies and onerous property taxes.
The committee bill would require school districts to cut local taxes by $2.6 billion in exchange for up to $5 billion more in state money. To pay for the shift, the personal-income tax would rise from 2.8 percent to 4.6 percent.
Now is the time to give such ideas full consideration, if only as a starting point to reform taxes in Philadelphia once and for all.
Whatever options are considered, what makes the most sense is that those who would gain most from improvements to the school system should be expected to make the biggest contribution.
Also, shifting the burden to a land or state income tax also should make it possible to make further cuts in the city's onerous commuter wage tax, the oft-cited demon of doing business here.
No one should expect deep cuts in their overall tax bills any time soon. But raising the tax burden in a place where taxes are already the No. 1 complaint is simply out of the question.
http://www.earthrights.net/archives/philly/editorial2.html