Act of Regression

Mayor Nutter saved city services in his newest budget. Now Philly activists are crying foul over his tax plans.

By Catherine Caperello
Add Comment Add Comment | Comments: 2 | Posted Mar. 24, 2009

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Mayor Nutter’s budget plan doesn’t call for laying-off any cops or firefighters. He won’t be closing the libraries. City-run community health centers will stay open. He’s not removing any fire equipment from stations, more pools will stay open than previously thought and many more city workers will give up their taxpayer-financed cars to find their own way to work.

Good news, right? So why is Philly’s activist community still crying foul?

In return for the preservation of  essential services, the mayor’s budget plan needs funding, much of which comes from sales and property tax hikes. It’s not so much that taxes are going to be raised – it’s which taxes are going up  that has community organizers so incensed. Activists say that these sources of revenue disproportionately affect the poor.

“What we’re urging is a progressive tax system. The big thing that’s missing. We’re just saying that people who are able to pay, should pay,” says Freda Egnal of the Coalition for Essential Services, a group comprised of over 35 service agencies which banded together in November to amplify their voices instead of competing with each other’s message.

“We think that some of the ways the mayor talked about finding sources of income were unfair. They put too much of a burden on lower-income and to some degree middle-income workers,” says Gloria Gilman, private attorney and chair of Philadelphia Neighborhood Networks, one of the coalition’s member groups.

Understanding the difference between regressive and progressive taxes sounds pretty boring but it’s key. Take the 1 percent hike in sales taxes, for example. That means a $50 pair of shoes will cost an extra 50 cents to buy. That 50 cents doesn’t seem like much – but takes a bigger portion of the income of somebody making, say, $500 a week than it does somebody making $2,000 a week. Add up all the purchases made during the course of a year, and it’s clear the person making less money will feel a bigger pinch.

But Nutter’s office points out that some necessities are exempt from the sales tax increase.

“In Pennsylvania the sales tax doesn’t apply to food, clothing and pharmaceuticals which makes it less regressive than it is in other places,” says Rob Dubow, Nutter’s finance director. “The state also has an exemption for seniors who meet poverty restrictions so there are some extenuating issues there.”

There isn’t, however, a similar relief valve for those who might not make ends meet if Nutter’s 19 percent property tax increase is approved. Add to that a broken assessment system that assigns disparate values to seemingly similar houses, and there is a potental for trouble.

“That system is being overhauled right now with new numbers supposed to come out within a month.” says Dubow, “The accuracy of that system is a real, legitimate concern and we’ve been working with the [Board of Revision of Taxes] to make sure they get their new and accurate numbers done as quickly as possible but also to make sure that the numbers are right so we’ve been working with them on that at the same time.”

But activists say Philadelphia families shouldn’t have to bear the brunt of the tax increases.

“There are exemptions for certain types of companies like the insurance business and the banking industry, which are big sectors in the Philadelphia region,” says Gilman.“They don’t pay income taxes and so why should they be exempt from that? They are profit making.”

“That’s not completely accurate. They pay less than other entities, but they still pay tax.” Dubow responded. “They’re called ‘regulated industries’ so their calculation is done differently from non-regulated industries and because of the way their calculation is done, they wind up paying less.”

Gilman and her allies want the state law changed to allow higher taxes on those business. They’d also like to see greater contributions from tax-exempt non-profits – like hospitals and universities – that own property in Philadelphia and benefit from city services. In the past, those institutions participated in a “voluntary” payment program under threat of having their exemptions challenged by then-Mayor Ed Rendell.

“Our major universities like Penn own a lot of real estate and they’re making money from some of that real estate, which they lease out to the private sector and they make profits on that,” Gilman said. “But they don’t share any of those profits with the city. Is that fair?”

Dubow said the mayor’s office could revisit a voluntary contribution program. But even non-profits are strapped for cash – and officials at those institutions say they are paying some taxes.

“What many people don’t realize is that Penn has always paid substantial real estate tax on it’s commercial and retail real estate, generating substantial long-term tax revenue for the city,” says university spokesperson Lori Doyle. “Dorms and classrooms – we don’t pay taxes on those, those are tax exempt but for all of our properties that are used for commercial and retail real estate we do pay substantial real estate tax on those properties.”

The Nutter administration has announced a Task Force on Tax Policy and Economic Competitiveness which is charged with reviewing apparent inequities in the tax system.

“We’re setting up a task force to look at issues like this. To look at our whole tax structure, what it means in terms of our economic competitiveness, what it means in terms of equity and they’ll be tasked with getting recommendations especially by the end of the summer,” says Dubow. “These are exactly the type of issues they’ll be looking at.”

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1. Ben Menk said... on Mar 24, 2009 at 06:10PM

“I dislike some of the jumps that this logic makes while trying to dispute the 1 cent sales hike: "That means a $50 pair of shoes will cost an extra 50 cents to buy. That 50 cents doesn’t seem like much – but takes a bigger portion of the income of somebody making, say, $500 a week than it does somebody making $2,000 a week. Add up all the purchases made during the course of a year, and it’s clear the person making less money will feel a bigger pinch." That's all well and good, however, if you wish to argue proportions, you should take all the extra expenses during the week. I would argue that their proportions of extra spending cash (that they would spend on shoes and the like) would be approximately the same. Therefore, the sales tax they would pay would be roughly the same as well. Everyone feels a relatively similar pinch.”

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2. anthony amato said... on Nov 28, 2010 at 10:31PM

“i voted for mike nutter but what a bad mayor”

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