City Hall Should Reduce Business Taxes ASAP

Philadelphia needs to do everything it can to encourage small-business growth

Since Mayor Nutter has been busy raising taxes during most of his first term, it is good to see someone at City Hall finally do something about Philadelphia’s crushing tax burden. Credit several of the brighter lights on City Council for stepping up with two bills aimed at lowering business taxes in Philadelphia.
One measure sponsored by Councilman James Kenney would exempt startup businesses from paying business taxes for two years, provided they employ at least three city residents in the first year and six by the second year. He said the bill would also eliminate up to $5,000 in fees that businesses pay to open in the city.

The other bill, co-sponsored by Councilman Bill Green and Councilwoman Maria Quinones-Sanchez, would provide a $100,000 exemption on the gross receipts portion of the hated business privilege tax. The measure would also exempt businesses from paying the net-income portion on the first $100,000 in sales.

Green called the measures “the biggest impact in tax reform done for businesses in the history of Philadelphia.” A bit of hyperbole perhaps. But it is probably not too far off considering how little tax reform has taken place in the city over the years.

After all, this is the city that loves to tax you back. Philadelphia has one of the highest overall tax burdens in the country. Many elected officials don’t seem to care or grasp the fact that the city’s tax structure is one of the main reasons many businesses and families leave Philadelphia, and why others choose not to move here. The result is a vicious cycle at City Hall of shrinking revenues and increased costs.

The city made great strides in reducing the onerous wage tax during the Rendell and Street administrations. The result was an increase in population and an amazing rebirth of restaurants and shops in Center City. But Nutter ended those tax cuts and began raising a variety of other broad-based taxes, including higher levies on property, sales and parking. Now everyone is just trying to hang on.

Granted, the recession left Nutter with lots of bad choices. But rather than use the economic crisis to reform City Hall, the mayor has largely maintained the bureaucracy, while increasing the tax burden on residents.

Those moves have only set the city back, rather than position it to grow once the economy does improve. Like other mayors, Nutter has largely failed to address the growing pension and health-care costs of city workers. His deal with the police union was no-game-changer regardless of what the Mayor claims.

Instead, the size of the government has remained about the same, while the tax burden on city residents has grown under Nutter. That is not sustainable. At some point, the bill is going to come due in a big way—as it has for other governments.

That’s why the moves by Council to reduce small-business taxes are welcome. Anything the city can do to attract, retain and grow more small businesses is a good policy. Studies show that small businesses account for about half of all the jobs in the country. And Philadelphia is not known as being very business friendly.

Some may grouse that Council should do more to help homeowners rather than cater to the business community. No doubt residents could use some tax relief as well. But these measures are aimed more at small businesses than they are at the fat cats that have Occupy Wall Street protesters riled up. Those small businesses are the true fabric of the city. Philadelphia is not going to lure many big businesses, given the high costs of doing business in the city. Small businesses are the key to job growth in a city with unemployment of 11 percent.

Nutter supports the two Council measures, but the administration requested to delay or phase in some of the changes to cushion any loss in revenue to city coffers. Gotta feed the bureaucracy first. As such, all of the provisions won’t take effect until 2015.

But businesses and residents are hurting now. That’s all the more reason why Council and the Mayor should do more to reduce taxes for businesses and residents. The future of the city depends on it.