Tom Wolf’s Incredible Plan to Overhaul Philly Taxes

His budget would eliminate Philly's cigarette tax, slash wage and property taxes. In all? $540M of tax relief.

Gov. Tom Wolf unveiled his first budget plan for Pennsylvania Tuesday, and it’s nothing if not ambitious.

What got a little lost in the coverage of Wolf’s budget address, though, is that he is also proposing big changes for Philadelphia’s local taxes. The Wolf administration says his budget would provide about $538 million in tax relief for the city, which would be funded by his planned hike on statewide personal income and sales taxes. Here are the specifics, via Wolf spokesman Jeffrey Sheridan, which he says would all go into effect in 2016-17:

  • Using an estimated $88 million of tax relief, Wolf wants to double the city’s existing homestead exemption for property taxes as well as reduce the overall property tax rate. Details were not immediately available on how much the property tax rate would drop. Additionally, Wolf is proposing a $500 rent rebate for state residents, including those in Philadelphia, who earn up to $50,000 annually.
  • Wolf’s budget would eliminate the city’s $2 tax on every pack of cigarettes, making up for the costs with tax relief. (Wolf’s plan would also raise the state cigarette tax by $1 per pack.)
  • Wolf wants to reduce the city’s local sales tax from 2 percent to 1.4 percent, using, again, tax relief. Since he is pushing to raise the state sales tax from 6 percent to 6.6 percent, this means Philly’s overall sales tax would remain at its current rate of 8 percent.
  • Wolf wants to reduce the city’s wage tax for residents from 3.92 percent to 3.48 percent with — you guessed it — tax relief. It would continue to fall in future years, and by 2020, the Wolf administration says it would reach its lowest point since 1976 at 3.36 percent. The wage tax for nonresidents would drop from 3.49 percent to 3.11 percent.

Though Philadelphians would have to pay higher state personal income taxes to help fund Wolf’s tax relief, it’s hard not to see this package as a boon for the city. Officials have been talking about dramatically reducing the wage tax for years, and some have argued that our cigarette tax, paired with our sales tax, is particularly punishing to the city’s poor.

We don’t know yet whether Wolf’s budget is disproportionately good for the city, but if it is, that would almost certainly make it tougher to sell in Harrisburg — and it’s not a slam dunk in the GOP-controlled legislature to begin with.

It seems at least some of Wolf’s changes would require approval by the city government. On one hand, it’s hard to imagine local leaders turning down a fat check from the state. But then again, it’s possible they could push to use Wolf’s proposed tax relief in slightly different ways than he has planned.

Mayor Michael Nutter called Wolf’s overall budget “bold” and “innovative” in a statement Tuesday.

“In Philadelphia, the governor’s budget would translate into about $540 million in new and existing tax relief, including significant reduction to the wage tax,” said Nutter.

Asked if Nutter supports particular elements of Wolf’s tax relief package, mayoral spokesman Mark McDonald said he could not immediately provide further details beyond his statement.

City Council President Darrell Clarke also applauded Wolf’s budget in a statement, saying, “Lowering the wage tax, leveling the sales tax and repealing the cigarette tax in Philadelphia will make our city, the largest economic engine in Pennsylvania, stronger and more competitive.”