While I am from New York City and live there I have a special place for Philadelphia and I keep up to date with its politics and the goings-on in related fields.
Philadelphia is (and has been) very close to employing some of the smartest and most progressive taxation and property tax reform in the nation that when implemented and successful will point towards a different direction for taxation in the country.
There have been a number of studies ordered by the Comptrollers Office and the City Council as well as a long standing research commitee that has run the numbers again and again and keep on making reccomendations to implement this plan. More in the extended section...
But Mayor Street has dragged his feet and backtracked.
So what is this plan? It is a modernized version of Henry George's Land Value Tax, or LVT. Essentially the idea is that property taxes should fall more heavily on land rather than the structures that sit on the land.
Adjacent properties where one is fully developed and the other vacant should have similar (if not identical) assessed values but the taxes fall more heavily on the developed property, on the person who has put labor and capital into the space. That person is taxed more heavily and the vacant lot owner pays almost nothing while keeping their money and maintaining their capital by drawing on the resources of the community while giving nothing back. This basic idea has implications way beyond property taxes.
Let me just say that this speaker, Josh Vincent is extraordinarily brilliant and as progressive as they come and should be a leading voice in implementing progressive taxation.
Property Tax in Philadelphia: What's wrong with it, and how it will be fixed.
A discussion at the Henry George School of Social Science,
413 South 10th, Philadelphia PA
Saturday, December 3rd from 10:00 - 11:30 AM Get Real about the Realty Tax- author and local tax expert, Josh Vincent, takes on assessment reform and the real estate tax reform that will inevitably follow it. Land Value Taxation and its practical application will be discussed, with graphics and maps showing how neighborhoods will be impacted.
Mr. Vincent recently published an editorial in the Philadelphia Inquirer that discussed the issues of the upcoming reassessment in Philadelphia, the likely outcome, and tools to make the property tax system fair, efficient and acceptable. Land taxation in particular can raise needed revenue without starving services. Land taxation is tax reform without starving essential in city budgets.
Philadelphia Inquirer Tue, Nov. 22, 2005 - Get real on Phila. Realty tax By Joshua Vincent
As Philadelphia prepares to assess each property at fair-market value, we're getting the message that longtime homeowners will suddenly be tossed into the street as merciless assessors present them with skyrocketing tax bills.
As peddled fears go, it's effective emotionally, but does not stand up to a deep breath and time to think.
Philadelphia has a property tax rate of 8.264 percent. Cherry Hill has a tax rate of 3.18 percent. Quick, where will a homeowner pay higher taxes?
Well, unless you're a policy wonk who gets over-excited about ratios, effective rates, and other public finance hocus-pocus, you'd probably say Philadelphia. That misperception is one more barrier to marketing Philadelphia as a city for all, not just condo-buying fabulous people.
Fact is, a Philadelphia house worth $100,000 pays $1,851 in property tax, while the Cherry Hill house worth that much pays $3,180. Someone deciding to move to the Philadelphia region would be forgiven for being confused.
That one simple reality is just one of many reasons that full valuation is essential for Philadelphia. Much angst is being generated by the debate in City Council, but not much clarity. Let me try.
Here's how we figure out how much a city property owner pays in tax today:
Property value multiplied by 70 percent (the 70 percent is the percent to "real" value that the Philadelphia assessors shoot for).
This value is then multiplied by 32 percent (the average assessed value measured against the market value, which by the way is not the real value but rather about 70 percent of it).
Finally, we apply the tax rate of 8.264 percent, and, presto, there's the tax bill.
Now let's look at what is being proposed: Value times rate equals tax bill.
Which option is easier to understand?
Why are there two fractions in the current valuation process? No one has a good answer because there isn't one. There's an axiom in the assessment profession: "Fractional assessments are the graveyard for assessor's mistakes."
Now, we have the Board of Revision of Taxes (a terrible misnomer since it doesn't set tax rates) pledging, forcefully, to get assessments right. Chairman David Glancey and his team are to be applauded, and supported by city government. Also, it is following the law of Pennsylvania, which is a nice thing for a government entity to do.
Now, some citizens believe that there is an automatic tax increase when values go up. That fear is true only when the tax-rate-setting body - City Council - does not change the rate.
Values go up. Tax rates go down. Literally thousands of cities and towns across the nation do this every year.
Does the problem get worse with lags between assessments? Yes, and putting off the reckoning only makes things worse.
Right now, the poorest homeowners in Philadelphia pay more in property taxes than they should. That is not a vague concern about what could be, but a fact. Those poor homeowners also pay a wage tax, and struggle to find employment because of the scarcity of entry-level jobs in Philadelphia, thanks to business taxes that hit small businesses hardest. That's a fact. No one fulminating against full valuation and reassessment can or wants to explain why someone barely holding on in the 1400 block of West Grange Avenue in Ogontz is paying $1,132 a year in real estate tax (in a house worth around $80,000 or $90,000) while someone who recently bought a house for $226,000 in the 800 block of "hot" Kimball Street in Bella Vista is paying $1,026.
It's also a fact that tools exist to buffer the unreasonable or sudden increases that those few properties might see with full valuation and a reassessment: buffers, phase-ins, and the land value tax. All of these programs would reduce or stabilize the tax bills of the vast majority of Philadelphia homeowners, while we'd finally have a system that anybody can understand.
Like it or not, the property tax is here to stay; it is progressive, and it must be modernized in Philadelphia. Eventually, a judge or a class-action suit will order a full assessment anyway, so let's get it done, with a full toolbox to fix any problems that arise.
Accurate and understandable values are a necessary first step. Citizens are taxpayers and grownups and can handle the truth. Can their leaders?
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Joshua Vincent is president of the Center for the Study of Economics in Center City. 215.545.6004
If you can, you should go and hear this guy speak and find out to change Philadelphia and then use it a a lever to work for progressive taxation in the country.