Philadelphia businesses would see modestly cut tax rates under Kenney’s budget plan

Philadelphia would slightly cut tax rates for businesses and workers under Mayor Jim Kenney’s proposed fiscal 2022 budget, providing modest tax relief to support an economic recovery from the pandemic.

Kenney’s $5.2 billion proposal would accelerate incremental cuts to the city’s wage tax and resume planned decreases in business taxes, which critics have long blamed for making the city uncompetitive in attracting companies. The budget would also reduce the parking tax rate to pre-pandemic levels as the city hopes that commuters return to offices.

Although some business owners had hoped the infusion of federal relief funds could pay for bigger changes to the city’s tax code, business advocacy groups largely praised the plan. Others questioned whether the tax relief would be enough for struggling businesses.

In a budget address to City Council on Thursday, Kenney said his fiscal plan would bring the city’s wage tax, the highest in the nation, to the lowest level in 50 years and achieve the biggest cut to the tax in a decade. Under the plan, the city would trim the wage tax rate for residents from 3.87% to 3.82% by fiscal 2026. For nonresidents, the wage tax would decrease from 3.5% to 3.4% over the five-year period. The plan amounts to $83 million in wage tax cuts.

“I’m proud to report that this plan proposes no tax or fee increases. In fact, we’ll help businesses — and residents — by providing tax relief,” Kenney said. “This cut will help jump-start our economy and provide relief to workers.”

That tax relief would be modest. A resident making $50,000 a year would save $15.70 next year and $1.90 the following year, with small reductions continuing throughout the five-year plan. Nonresidents would save $40 in fiscal 2022 and $1.70 the next year, and would also have incremental reductions continue for the five-year plan. Commuters would save more because the city is reversing a tax hike it imposed this fiscal year.

The plan would continue gradual cuts to the city’s business income and receipts tax (BIRT), which uniquely imposes levies on both business revenue and profits. Kenney’s proposal would cut the tax on net income from 6.2% to 5.25% in fiscal 2025. The tax on revenue — 0.14% — would remain unchanged. And the parking tax would revert to 22.5% after a one-year increase to 27% this fiscal year.

Some businesses plan to keep employees working from home after the pandemic and government restrictions forced them to work remotely. The city expects 15% of commuters to never return to Philly offices, which would be a permanent loss to wage and parking taxes.

“To undo that suburban wage tax increase and to roll back that parking tax increase is really key to send a message out to the suburbs: We want you back as workers. We want you back as diners. We want you back in cultural institutions,” said Paul Levy, president and CEO of the Center City District, a business improvement district.

Kenney’s budget would boost funding to improve commercial corridors and also includes funds for workforce development as the city grapples with high unemployment. The mayor also pledged to make it easier to do business in Philadelphia by improving operations, investing in staff that aid firms, and helping get more minority businesses certified to compete for contracts.

The Chamber of Commerce for Greater Philadelphia applauded Kenney’s budget proposal, calling it a “practical approach to get the city back to work.”

“We believe that investment in neighborhood economic development, regulatory simplicity, and a less burdensome wage and business tax regime in an equitable model are imperative to making Philadelphia a true magnet for business and employment growth,” the group said in a statement.

Anna Shipp, executive director of the Sustainable Business Network of Greater Philadelphia, said that the slight tax cuts and investments in commercial corridors were “positives,” but added that she didn’t think it would be enough as businesses try to recover from the economic downturn.

“While the resources that are in here are good and they’re moving in a positive direction, there’s still there’s much more substantive change that needs to happen,” said Shipp, whose group represents hundreds of small businesses in the region.

Councilmember Helen Gym said she disagrees with Kenney’s tax cut proposal. The city “can’t afford the $343 million” in tax cuts over the next five years, she said.

Gym said she would like the federal stimulus, which will provide the city with $1.4 billion, to be invested in programs and people rather than tax cuts. She said she’d like to see more money go toward items such as public safety, public transit, and schools.

“Those are truly the economic stimulus and the economic catalyst that cities like Philadelphia need,” she said. “There’s no amount of tax cuts that’s going to offset public safety. There’s no amount of tax cuts that’s going to offset whether your student population is housed and your student population is educated and has the most enrichment in schools.”

Councilmember Isaiah Thomas said it is important for the city to reconsider its reliance on the wage tax. Still, he wants to make sure that the tax cuts are fiscally responsible, especially because economic recovery is uncertain. The federal stimulus money is only one-time funding.

“I wouldn’t want to lower taxes now just to have to raise taxes again ... when we run out of stimulus dollars,” he said.

Councilmember Allan Domb, who introduced legislation last week calling for steeper cuts in wage and business taxes than Kenney’s proposal, said he was disappointed by the mayor’s plan.

“It is important to invest in our tax structure so that we can grow our economy,” he said. “And now more than ever every city’s going to have to be more competitive.”

Domb said it is important to send a message to businesses that the city has a long-term plan to reduce taxes, so that they will stay in the city and continue to grow. The city’s reliance on the wage tax also made its revenue loss greater during the pandemic than in other large cities. Domb said that rethinking the tax structure could also help protect the city from another downturn.

“I just think we need to be bolder in what we’re doing,” he said.