How can a city that is stressed by the current economic meltdown get beyond hard times? How can we, as a city, ensure that this never happens again? What about all the other places that will end up being left behind in our current economic crisis? We will get there but lets start in Philly.
Philadelphia, while currently living within its means, has not achieved structural balance ... its tax base continues to erode ... revenues thus remain in jeopardy of severe contraction in the eventuality of a declining national economy." PICA 1996
"In September, Nutter announced that faltering business tax receipts were about to create a hole of at least $450 million over five years. Last week, he said the gap could be almost double that, and announced freezes on nonunion bonuses and across-the-board department cuts." Philadelphia Daily News October 10, 2008
Seems like old times. Not much has changed. In Philadelphia, there is always a budget crisis; there is not enough revenue for services. The old ways of thinking about where tax dollars come from has to change.
How about a more positive prescription for Philadelphia? Let me try some ideas...
"Revenues raised by a modest, well-administered land tax can be used to replace the revenues lost from reducing the rates on commuter wages and gross receipts. Businesses that own land in the city give up two bad taxes for one good one... Now more than at any time since 1990 is the time for efficient provision of government services funded by efficient and fair taxation. If well administered, a land tax could be a useful part of the mix." Robert Inman, Mellon Professor of Finance, Wharton School of Business, University of Pennsylvania 2001
Designed in the early 1900s for 3 million people, Philadelphia's population was 2,071,000 in 1950; since then it's been steady loss. In 2000 the Census counted 1,517,000 a 4.3% loss from the 1990 Census. The latest estimate has us down to 1,450,000. Those left? The rich, poor and a shrinking middle-class.
Despite a glittering Center City, this is a fiasco. High taxation, notably the Wage Tax that is 3% to 4.5% higher than surrounding towns and counties, dealt the city staggering blows. The Wage Tax garners is about double the city property tax; the high tax a prime reason why homeowners and builders do their business elsewhere.
The commercial sector reports the same because of a "double" tax in the form of a Business Privilege Tax. This tax is unique in the Unites States: it is a tax on gross receipts, and is also a tax on net receipts. It gets you coming and going and, believe us, it gets them going: small to medium businesses who do not have the political connections and the clout have abandoned Philadelphia to the rich, the poor, and the deep-pocket corporations.
On top of all this is the Sales Tax. In Pennsylvania we pay a 6% sales tax; bad enough considering Delaware's is 0%, but Philadelphia tacks on an added 1%. Sales taxes are a pretty nasty piece of work, they are regressive. Regressive means that the less wealth you have, the more you pay proportionally. As an example, if your hot water heater goes, and you are a millionaire, you pay $400, with an added sales tax of $28. What if you are a senior citizen on a fixed income? That $28 extra hurts...
The contrast between Philly's "no go" zone for markets and the thriving, overheated suburban sprawl could not be clearer.
Community activists have to fight - hard - for every dime now in an era of pinched budgets and lowered expectations. There is a way out.
Our Idea: Land Value Tax
The land value tax changes what the property tax is. The current property tax – unless you get one of those gold-plated 10-year tax abatements – falls most heavily your house, your apartment, and your place of employment. Instead, the property tax should fall on land.
This is a permanent, universal tax abatement on buildings for everybody.
What is the bottom line? What is our message? The message is that the Land Value Tax must be implemented, perhaps with a first year collection of 50% revenue from land and 50% from buildings (right now, it's 75% buildings, 25% land). The next years see incremental reductions in the tax on buildings so that finally the property tax becomes a 100% tax on land values.
Almost all residential properties see a tax reduction.
Then, in following years, a reduction of the hated Wage Tax, or the Business Privilege Tax, or others to be rolled into the land tax.
Everyone who owns, rents or uses a building will benefit. Revenues will stay neutral, so that essential city services are maintained. For a quick visual introduction to how this would play out in our city check this out...
Who Could Hate such a Good Idea?
Who can oppose ethical tax reform? Who opposes land tax? We know for sure that the owners of the petrochemical plants in southwest Philly hate the land tax idea. They have tons of land, don't use it well, and employ few.
Absentee owners of rental units in the poorest sections of the city will pay more. If THEY walk away from their properties it'll be no worse than the current rate of abandonment. It just might mean that the tenants themselves will get to own the houses, a great outcome in a city that needs homeowners.
Commercial parking lot owners will squeal. That will be music to the rest of the city, who blanch every time a historic, great office building is torn down to make way for King Asphalt.
Also, opposed are car dealers, such as the one who tore down whole stretches of Ridge Avenue in Roxborough and made them into vacant lots with prison-style lighting, only to leave a blasted landscape behind.
The Solution Lies Under Our Feet
As 2008 comes to a close we know this: the vast majority of properties in Philadelphia will save with LVT. There is no other place – except land value - to "put" the revenue being raised by wage and business taxes. The bill to implement a land tax is in the Mayor and City Council's hands. The stage is set; but this is an ongoing story, one that may take years to play out.