Philly Councilmembers Unveil Proposal to Tax Philly’s “Ultra-Rich”
The wealth tax, which could raise up to $280 million annually, targets directly held stocks and bonds. But it's still a long shot in Council.
When it comes to Philadelphia and wealth, the statistic that first comes to mind probably doesn’t have to do with having money, but rather with the lack of it: 23 percent of Philadelphians live below the poverty line, the largest percentage of any of the nation’s 10 largest cities.
City Councilmember Kendra Brooks, however, announced plans on Tuesday to introduce legislation for a Philadelphia “wealth tax” that could raise $240 million to $280 million annually for the city. (The current city budget is $5.27 billion.) The source of the wealth: directly held stock and bonds, which amount to roughly $60 billion to $70 billion in assets in Philadelphia, according to the Pennsylvania Budget and Policy Center.
This isn’t Brooks’s first attempt to institute such a tax in Philly. In 2020, she introduced a similar piece of legislation that got little attention and never received a hearing. But Brooks believes this time will be different, as the city emerges from the budgetary disaster of the pandemic and contemplates ways to make its tax base more sustainable in the future. “I think that many elected officials are looking for creative ways to create recovery here in Philadelphia, and I’m hoping there’s greater appetite for something like this,” she said.
The bill, which is co-sponsored by Councilmembers Helen Gym and Jamie Gauthier, is still a long shot, though Brooks is doing her best to gin up support. At the bill’s introductory press conference, she received an endorsement from a pretty famous headliner: Massachusetts Senator Elizabeth Warren, a longtime advocate for a wealth tax at the federal level who helped popularize the idea. In a brief speech (before promptly dropping off the call), Warren emphasized that “these proposals are popular with Americans, and they’re popular because Americans understand that the tax system is rigged. Taxing the wealth of the ultra-rich will make our tax system fairer.” Leadership of two large municipal unions, AFSCME District Councils 33 and 47, also spoke in favor of Brooks’s legislation.
But there’s a key difference between the Warren and Brooks proposals. Warren’s federal wealth tax would only affect people whose net worth exceeds $50 million. Similar proposals in California and Washington state follow a similar model. Brooks’s bill, on the other hand, taxes everyone equally, at 0.4 percent, or $4 for every $1,000 in assets, so as to not violate the Pennsylvania uniformity clause, which requires that all taxes be levied equally. This tax, on so-called “intangible wealth,” was intentionally designed to omit many of the interest-bearing investment vehicles owned by ordinary Americans, including mutual funds, exchange-traded funds, retirement funds and bank accounts. Instead, it targets only directly held stocks and bonds, which are disproportionately held by wealthier Americans. Marc Stier, director of the Pennsylvania Budget and Policy Center, estimated that the top five percent of wealthy Philadelphians would contribute 70 percent of the tax’s revenue — and that those making less than $112,000 a year weren’t likely to pay any tax at all.
Municipal tax reform has been a longstanding topic of discussion among both progressives and the business community. For years, Center City District president Paul Levy advocated alongside developer Jerry Sweeney to reduce Philadelphia wage and business taxes, which are among the highest in the country, in favor of higher taxes on commercial real estate, arguing that while people and businesses can move away from the city to flee tax hikes, buildings can’t. That effort ran up against the uniformity clause and ultimately failed.
Levy expressed doubt that Brooks’s new tax proposal would do much to alleviate the city’s current issues with its tax base. “The best way to achieve progressive goals is by enhancing prosperity, creating more jobs in Philadelphia,” he wrote in an emailed statement. “We have already proved with our wage tax that we know how to drive the working and middle class and businesses out of the city. We have the highest poverty rate because we have the slowest job growth.”
But by introducing a revamped wealth tax, three of the city’s most visible progressive politicians are suggesting a new vision of tax policy reform, one that’s distinct from the dominant Levy-Sweeney school of thought. Instead of focusing on growing business, the tax is being billed as a way to provide better city services to neighborhoods of color that have experienced decades of disinvestment. “The Philly wealth tax is our collective answer to the status quo that has failed communities like mine for decades,” Brooks said. Councilmember Jamie Gauthier added, “This is not charity; it’s what Philadelphians — Black and brown Philadelphians in particular — are owed. … We need to balance the scales, and to do that, we need to change the ways wealth is distributed.”
While Philadelphia would be the first major city to introduce a new wealth tax in years, the concept of a wealth tax itself isn’t new for the city. In 1996, a year before its repeal, a different iteration of the wealth tax was expected to raise $19 million a year, or $28 million in today’s dollars. That’s considerably less than today’s $280 million estimate, though wealth among the richest Americans has grown since then, and the previous wealth tax levied different assets. Nor was it taken especially seriously, according to Stier. (He once heard an accountant refer to it as “voluntary” because the risk of getting caught for non-payment was so low.) That’s much less likely to be the case today thanks to better information-sharing between governments, not to mention the fact that the vast majority of the wealth to be taxed under the proposal — publicly traded stocks and bonds — is much easier to track.
Brooks’s wealth tax proposal comes amid a backdrop of budgetary discussions at both the federal and local levels. Mayor Jim Kenney, who didn’t attend the wealth-tax press conference, is set to unveil his fiscal year 2023 budget on Thursday, the same day Brooks will formally introduce her legislation in City Council. Meanwhile, President Joe Biden on Tuesday announced a wealth-tax proposal of his own. But like Brooks’s measure, that, too, faces an uphill battle: West Virginia Senator Joe Manchin has already said he doesn’t support it. In the case of Philly’s wealth tax, drawing enough attention this time around to force other elected officials to come out against it — well, that might actually be seen as an improvement.
An earlier version of this story incorrectly stated Brooks’s 2020 wealth tax bill was never referred to committee. It was, but never received a hearing.