How Mayor Parker is changing the conversation on Philly’s tax structure

For three decades, successive Philadelphia mayors have begun their administrations with a push to lower the wage tax, the business tax, or both.

That streak ended last week.

Mayor Cherelle L. Parker’s $6.29 billion budget proposal would leave all city tax rates unchanged. That includes the wage tax, which is the highest of its kind in the nation at 3.75% for Philadelphians and 3.44% for people who work in the city but live elsewhere.

The omission of a tax rate change in Parker’s proposal marks a notable change in the long-stagnant debate over taxes in Philly. It’s also an example of how the new mayor’s politics are reorienting an ideological divide that had been growing in City Hall toward the end of former Mayor Jim Kenney’s administration, with progressives pushing to freeze tax cuts and create a new “wealth tax,” while business-friendly lawmakers angled for more aggressive reductions.

Parker’s approach, which doesn’t fit into either of those camps, was evident in her budget address to Council last week as she focused on the need to improve city services and crack down on crime.

She said in an interview last week that she is open to “aggressive” reductions to both wage and business taxes in the future, and as a Council member she voted several times to make incremental cuts to those tax rates.

But she also made it clear that she’s not in a rush to tackle the complex task of reshaping Philadelphia’s unusual tax structure, which relies more heavily than other cities on wage taxes and has a relatively light property tax burden.

“Right now, what we need to do to ensure that business can thrive in this city is take care of the basics, and that is ensure the public safety, the cleanliness, greening our city, making it inviting and welcoming again,” Parker said.

Commerce Director Alba Martinez said the lack of cuts in the plan Parker unveiled last week does not mean the administration opposes tax relief.

“I would not take this particular budget as our long-term sentiment on tax reduction,” Martinez said. “She has a budget that really focuses on what the city needs right now, and I think it’s a very business-friendly budget.”

But given the city’s strong financial position — with a projected $486 million surplus next year and another $449 million in federal aid to be spent by the end of 2024 — there will likely be a debate over tax cuts this spring whether the administration invites it or not. And it may be one of the few areas where Council goes in a different direction than Parker during budget negotiations.

Several lawmakers have already indicated they are interested in wage or business cuts this year, and Council President Kenyatta Johnson last week ruled out the possibility of raising taxes — while declining to say the same about cuts.

Chellie Cameron, president and CEO of the Chamber of Commerce for Greater Philadelphia, praised Parker’s budget proposal, saying improving public safety and cleanliness are priorities for business. But she also said the city should “take a serious look at how we incentivize businesses to come into the city and the region, and the tax issue is something they cite.”

“We’re hopeful that we can continue to work with her office and with City Council to keep those reductions going,” she said.

City leaders’ long-term strategy to reshape the city’s tax structure, which was been embraced by mayors going back to Ed Rendell’s administration in the 1990s, was focused primarily on slowly lowering the wage tax rate.

That goal has largely been driven by the business community, which contends the tax makes Philly unattractive to employers, and city finance officials, who have shown relying on the tax makes for a volatile revenue stream that’s more susceptible to economic downturns or other factors, like remote work, than the real estate tax.

Under Parker’s budget proposal, the city would take in about $2.6 billion from the wage tax, its largest revenue stream, accounting for more than half of the city’s $4.3 billion in tax revenue. The next largest is the property tax, which would bring in $877 million.

The business tax, levied on gross receipts and net income, is third, with a projected $633 million in revenue next year.

To reduce reliance on wage taxes, officials have made incremental annual cuts while allowing revenue from the real estate tax to grow organically as property values increased.

Significantly raising property taxes, however, is politically treacherous, and the wage tax cuts that have been able to pass Council have been so small that former Mayor John F. Street once joked that they were only enough to give an average Philly family one night out on the town — if they didn’t go to a fancy restaurant.

The city has also temporarily frozen scheduled wage and business tax rate reductions during emergencies, such as the aftermath of the 2008 financial crisis and the coronavirus pandemic. And city leaders have also created other new taxes, including former Mayor Michael A. Nutter’s cigarette tax, Kenney’s tax on sweetened beverages, and former Council President Darrell L. Clarke’s construction tax.

But the broad support for wage tax reductions has added up over time, and the wage levy has been reduced by about a quarter, from a peak of 4.96% of earnings in 1995 to the 3.75% rate for city residents today.

Parker appears to be in the camp of politicians who would rather see a major reform of the tax structure than a continuation of incremental cuts. But that debate could be years down the road.

Before tackling the issue, Parker said she wants to wait for the recommendations of Council’s newly announced Tax Reform Commission, which will be the fourth panel on tax policy city leaders have established in the last 22 years. But the members of the new panel haven’t been announced yet, and it’s unlikely they will produce a report before lawmakers wrap up budget negotiations this spring.

In recent public statements, Parker has said tax reform in Philadelphia should wait until after state lawmakers raise the minimum wage to $15 an hour and amend the state constitution to allow Philly to tax commercial real estate at a higher rate than residential properties. Those changes would take years to accomplish, at a minimum.

Some Council members, however, don’t want to wait. Councilmember Isaiah Thomas, who pushed for tax cuts during budget negotiations in the past few years, plans to continue that work this spring, a spokesperson said.

“We need to make it easier, cheaper, and more attractive for families and businesses to choose Philly,” Thomas’ spokesperson, Max Weisman, said.

But Councilmember Brian O’Neill, who is Council’s only Republican and its longest-serving member, said the mayor’s stance makes a difference in how negotiations unfold.

“I’ve voted for [tax cuts] every time, but when the mayor has decided not to do it, my vote doesn’t matter,” O’Neill said. “It’s much easier to do it when the mayor puts it in.”

Former Mayor Michael A. Nutter said he believes Parker’s stance contains a hidden message: She wants the business community to help accomplish her tax and minimum wage goals on the state level before she gives them what they want on the city level.

Parker, he said, is effectively saying, “I’m going to use it as my convening rallying call to get my Harrisburg thing done because I can always double-back to do tax reduction in Philadelphia.”

He added: “There’s a longer-term political strategy to this.”

Staff writer Anna Orso contributed to this article.