Philly may compromise on a wage tax cut by reducing it more for residents than commuters

Philadelphia City Council members are considering a compromise on Mayor Jim Kenney’s proposal to cut the city wage tax, the strongest indication yet that Kenney and lawmakers are close to reaching a deal on next year’s budget.

But Kenney’s separate proposal to cut the business income and receipts tax appears to have little support among lawmakers, some of whom say it will disproportionately benefit large corporations.

Council leadership on Monday circulated a proposed amendment to Kenney’s bill to reduce the wage tax that would keep his proposed tax cut for Philadelphia residents intact, while reducing the size of the cut for nonresidents who work in the city. Lawmakers late Monday said they were still reviewing the amendment, a draft of which was obtained by The Inquirer.

But the fact that Council leadership distributed the amendment, which could be considered as soon as Tuesday, indicates optimism that at least nine members, a Council majority, are willing to vote for it. That would be a major breakthrough in what’s been a bruising stretch of negotiations between Kenney’s team and lawmakers.

Kenney and Council have until the end of the month to pass the new budget. If Council follows its usual rules, it must advance all budget legislation out of committee by Thursday. City Council leaders hoped to reach a final budget last week, but disagreements have persisted over the tax cuts, how to spend federal stimulus aid, and funding for antiviolence programs.

» READ MORE: Philadelphia News Philly leaders negotiate anti-violence funding, federal aid, and tax cuts as budget deadline nears

The cuts under consideration are minuscule. Kenney had proposed reducing the wage tax on city residents from 3.8712% to 3.8398%, which would cost the city $10.6 million in diminished tax revenues next year.

For nonresidents, the mayor proposed a cut from 3.5019% to 3.4201%, which would cost $18.9 million. The Council amendment would instead lower the nonresident rate to 3.4481%, at a cost of $12.4 million.

The $6.5 million difference between Kenney’s original plan and the Council amendment is a drop in the bucket of the $5.18 billion proposed budget.

Local business groups and the Kenney administration are pushing tax relief measures to signal that city leaders are committed to making Philadelphia more business-friendly as it recovers from the coronavirus pandemic.

“A number of studies have shown that both the wage tax and the business tax cost us jobs and that if we reduce them, that helps create more jobs that benefit the city in the long term,” city Finance Director Rob Dubow told Council last month.

But both Council’s progressive bloc and other members have warily eyed the proposed tax cuts.

“Why would we be rewarding this group by lowering their wage tax rates?” Councilmember Cherelle Parker, the Majority Leader, said last month of wage tax cuts for suburban commuters. “They don’t live in the city of Philadelphia, and now some of them won’t ever be returning to Philadelphia to work. … So instead, why wouldn’t we be focused on some of the Philadelphians who both live here and they work here?”

And progressives have been critical of any tax cuts at a time when the city has costly needs, such as aiding residents facing evictions, building affordable housing, and funding antiviolence programs.

The amendment, however, may make the tax cut proposal more palatable for some council members because it shifts some of the tax burden away from city residents and toward suburban commuters.

Kenney’s proposed budget would use an infusion of federal stimulus money to return the city to pre-pandemic spending levels by restoring some services cut last year, reducing taxes, and borrowing money for large projects.

Correction: An earlier version of this story misstated the current wage tax rate for Philadelphia residents, as well as Mayor Jim Kenney’s proposed rate. The current rate is 3.8721%. Kenney is proposing cutting it to 3.8398%.