Darrell Clarke Moves to Quash Big Tax Reform Plan

The Council President says the wage and business tax-cutting proposal spearheaded by Paul Levy and Jerry Sweeney doesn't add up.

Darrell Clarke is not impressed. Photo | Jeff Fusco

Darrell Clarke is not impressed. Photo | Jeff Fusco

City Council President Darrell Clarke has forcefully come out against the ambitious plan spearheaded by Paul Levy and Jerry Sweeney to overhaul the city’s tax structure in a way they say will promote economic development and job growth.

This is a big deal. Tax reform — which is usually shorthand for lowering Philadelphia’s extremely high tax rates on wages and businesses — has been hotly debated in the city for decades. Proponents see it as the single best answer to Philadelphia’s anemic job growth. Opponents question the assumption that lower taxes would generate jobs, and they worry that it would starve city government of badly needed revenue.

But this tax reform plan, which is backed by an unusually broad mix of business and labor interests called the Growth Coalition, is a bit different that earlier proposals. It would slash wage and business taxes, yes, but the coalition proposes to pay for those tax cuts by increasing real estate taxes on commercial properties by 15 percent.

And the coalition is selling the package as a net revenue winner for the city, which is a large part of the reason why this plan has some real momentum (most of the mayoral field embraced the rough outlines of the plan, for instance).

But Clarke clearly isn’t buying it. He’s naturally suspicious of sweeping plans that purport to solve big problems at little-to-no cost (excepting those he hatches himself, naturally enough). Look at his position on the sale of PGW, or his doubts about the Land Bank.

So it’s not surprising that he had a respected former City Council budget aide review the Coalition’s calculations and assumptions. The former aide’s conclusions? The coalition’s numbers are all wrong. The city won’t make more money if the tax plan is enacted, it will lose money, to the tune of $91 million by year 10 of the plan (and more after that).

“The bottom line is this: The Coalition’s math did not add up. Initial assumptions were erroneous.” Clarke wrote in a letter Thursday to State Rep. John Taylor, who has been sponsoring the legislation the city would need to enact the tax reform plan (that’s a whole other story — getting the plan passed requires not just a change to state law, but a change to the state constitution).

But here’s the thing. The analysis Clarke cites is old. It’s dated Sep. 9, 2014. And according to Center City District Executive Director Paul Levy, the analysis is based on outdated numbers and language.

“We’re delighted the councilman is engaged on the the issue of strengthening the city’s competitiveness, unfortunately the analysis he released is based on a version of the plan from two-and-a-half years ago,” Levy says. “The work that we have done and shared with all of Council has moved well beyond that.”

Clarke doesn’t oppose every element of the plan. Indeed, he supports the hard political-lift at the core of the plan: getting a state constitutional amendment that would permit the city to tax commercial property at a higher rate than it taxes residential properties. Right now, that’s forbidden because of a troublesome passage in the state constitution called the “uniformity clause.”

But the Growth Coalition’s plan would require those higher commercial real estate tax revenues to be used to reduce wage and business taxes, and that’s where Clarke’s opposition begins. “This wholly unnecessary modification could jeopardize the fiscal well-being of our municipal government; if implemented, Council simply could not risk moving forward with dual rates,” Clarke wrote to Taylor.

That’s a big deal, because the tax reform plan would require Council’s approval. That’s in addition to the constitutional amendment and state authorizing legislation (yeah, this whole thing is hardly a slam dunk).

So does Clarke’s opposition mean tax reform is dead in the water? Not so fast. On June 11, City Council considered a resolution urging the General Assembly to modify the uniformity clause. And guess what? It passed 14-1. The lone dissenting vote was Clarke.

I doubt there’s ever been another vote in recent Council history where the lone dissenting vote was cast by the Council president. It’s not clear that this was a rebuke to Clarke, or if council members were simply not paying much attention to the vote (hey, it happens). But it does raise an interesting question about how much opposition beyond Clarke there may or may not be to the tax reform plan.

Lauren Hitt, a spokeswoman for Democratic mayoral nominee Jim Kenney said in an email that he “supports bifurcating the city’s property taxes because its a significant step towards reforming Philadelphia’s regressive tax structure.” But, the email said, Kenney “understands the Council President’s concerns with certain elements of the plan, and Jim looks forward to working with him to ensure that the city has the necessary revenue to meet its responsibilities, while also addressing the urgent need for Philadelphia’s tax structure to become more competitive for business with its neighboring cities.”

So who’s actually right on the merits? That’s a question that’s awfully difficult for Citified to answer. The coalition hasn’t made available all the underlying assumptions it’s working off of, and it should. But even with those, these are complicated calculations that clearly need some independent vetting. Even bettter would be multiple vettings by multiple independent economists and budget experts.

Is PICA busy this summer?

Tax Reform Analysis