Insta-city business tax switch threatens 75,000 jobs

THE Hippocratic Oath includes the words "do no harm." City Council would be wise to heed that advice when it considers legislation sponsored by Council members Maria Quinones-Sanchez and Bill Green that would turn the city's business tax structure upside down and replace it with an untested and radically different taxing system.

As the city struggles through the recession and its highest jobless rate in decades, we must be careful not to implement any policy that would jeopardize our eventual recovery and future job growth.

Wharton economist Robert Inman has warned that the Sanchez-Green measure could potentially destroy 75,000 Philadelphia jobs by 2015.

The legislation would eliminate the tax on business profits while in many cases quadrupling a company's overall gross-receipts tax. Because it will tax volume rather than profitability, it unfairly places a heavier tax burden on large labor-intensive industries that employ hundreds, or thousands, of local residents - placing those thousands of jobs in jeopardy.

This legislation also creates winners and losers by providing a windfall for our richest companies at the cost of bankrupting the struggling ones. It's fashionable in Washington these days to argue that tax breaks for the wealthiest are good for everybody. This is just a new way of backing trickle-down economics.

While construction firms and large retailers will be heavily taxed, law firms that employ far fewer workers and operate on much higher profit margins will enjoy substantial tax reductions.

The construction and hotel industry say this change would end Philadelphia-based construction firms and stop all future hotel development in Philadelphia - at the same time the expanded Convention Center is ready to go on line following the investment of hundreds of millions of Pennsylvania tax dollars.

Proponents of this tax shifting cite the low profitability of some large retailers, and their low annual tax payments to the city, as the basis for not caring whether these employers remain in Philadelphia. But the key word here is "employers."

Many of these companies are highly labor-intensive and employ hundreds of workers who all pay city wage taxes. Can the city afford to lose the wage-tax revenue paid by these workers in low-profit-margin industries like the construction, hotel and large retail industries? Can the city also afford to lose the benefit of the dollars spent in the local economy by these fully employed workers?

Government should not be picking winners and losers. Nor should it be government's role to shift the tax burden from one industry to another and eliminate jobs in the process.

Rarely does a legislative body move so quickly on legislation with the potential for such wide-ranging consequences as the Sanchez-Green plan. And while we are troubled by the speed with which the sponsors are trying to rush this legislation through, we are equally troubled that an analysis by the city Finance Department concluded it would cost the city $23 million a year.

The sponsors also claim their legislation will benefit "Philadelphia-based businesses at the expense of out-of-town companies." While this may be a noteworthy goal, are we willing to reignite the old city vs. suburbs war that engulfed our region for decades over the question of suburbanites who work in the city being forced to pay a city wage-tax?

The ramifications of the wage-tax war stifled regional growth and cooperation with neighboring communities for decades until the Rendell mayoral administration lessened the animosity and made Philadelphia the centerpiece for regional economic growth.

FACING A new political reality in Harrisburg and Washington, the last thing we need is to create adversaries out of our current suburban allies and start another tax war.

City Commerce Director Alan Greenberger described the Sanchez-Green proposal as having "unpredictable consequences." An initiative that jeopardizes 75,000 jobs and gives some firms significant tax breaks while penalizing others shouldn't be rushed through City Council under a cloak of secrecy.

Jim Kenney is a member of City Council and Alan Butkovitz is the city controller.