COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING - COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, May 19, 2004, 1:25 p.m. - - - BILL 040397 - An Ordinance amending Chapter 19-1500 of The Philadelphia Code, entitled "Wage and Net Profits Tax," by decreasing in six stages the rates of the tax imposed upon certain low income persons, providing for refunds of excess taxes paid, and directing the Revenue Department to prepare forms for use by eligible taxpayers seeking such refunds; all under certain terms and conditions. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DAVID COHEN COUNCILMAN JAMES F. KENNEY COUNCILMAN FRANK RIZZO COUNCILMAN FRANK DI CICCO COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN MARIAN B. TASCO 2 Whole - 5/19/04 - Bill 040397 P R O C E E D I N G S - - -
Good afternoon, everyone. This is a public hearing of the Committee of the Whole, regarding Bill 8 Number 040397. I would ask Miss Ortiz to please read the title of that bill.
An ordinance amending Chapter 19-500 of The Philadelphia Code, entitled "Wage and Net Profits Tax," by decreasing in six stages the rates of the tax imposed upon certain low income persons, providing for refunds of excess taxes paid, and directing the Revenue Department to prepare forms for use by eligible taxpayers seeking such refunds, all under certain terms and conditions.
Thank you. Our first witness is Nancy Kammerdeiner, the Revenue Commissioner. Did you submit written testimony, Commissioner? 3 Whole - 5/19/04 - Bill 040397
I believe it was submitted on Monday. We thought it was originally scheduled --
Okay. Good. I hadn't done it personally, so I wasn't positive.
Good afternoon, Councilwoman Verna, and members of the Committee of the Whole. My name is Nancy Kammerdeiner, and I'm the Revenue Commissioner. I'm pleased to be with you today to present testimony regarding Bill Number 040397. This ordinance will amend section 19 19-1500 of The Philadelphia Code.
Excuse me. I'm sorry. Could you pull the microphone a little closer to you.
If you use this 4 Whole - 5/19/04 - Bill 040397 microphone, I can hear better those witnesses that are on this side, rather than on that side.
And since I don't see any Council members on that side, and there are two on this side, I would suggest emphasis on this side.
True. Be happy to accommodate. I believe you have my written testimony, so I won't read the entire testimony. I'll try and hit a few highlights on that.
Excuse me. The stenographer will have a copy of your written testimony.
Thank you. Chief of Staff Joyce Wilkerson and other members of the Administration have 5 Whole - 5/19/04 - Bill 040397 recently appeared before you the to discuss the Administration's plans for responsible tax reduction and reform. And you have her testimony, as well as a few comments here in mine, that recaps a number of those key points. I think the main thing here is that there are a number of things that need to be dealt with to close gaps in the current budget before we consider expending additional funds or actually reducing income in the form of revenue. The ordinance before you is a well-intentioned effort to apply the concept and guidelines of the state's successful personal income tax, tax back, tax forgiveness program to our wage tax. The ordinance would phase in provisions similar to those in the state program, by gradually reducing the wage tax rate for low income Philadelphia workers, and providing refunds beginning in fiscal year '07, following a filed request by the -- for a refund by the eligible 6 Whole - 5/19/04 - Bill 040397 taxpayer. The Department of Revenue estimates that the proposed ordinance would cost the City $81.7 million during the life of the fiscal '05 to 09 plan and $215.6 million over the first five-year period that the City would be required to provide refunds. The estimated annual cost --
I'm sorry. What was that figure for the refunds?
It would be $215.6 million over the first five-year period. And it was $81.7 million for this particular five-year plan. The estimated annual cost, once the program is fully phased in, is at least $75.8 million. However, I would caution you about this because our analysis is based on information from the Pennsylvania Department of Revenue for the 2001 tax year. That's the most recent data that we have in detail for the program. But we do know that the state has expanded 7 Whole - 5/19/04 - Bill 040397 eligibility for the program in 2002 and 2004, by increasing the value of dependent exemptions by over ten percent. As a result, more Philadelphians are now eligible to participate in the state program, and would therefore be eligible to participate in the wage tax reduction program, since it would have the same eligibility criteria. This means that the cost to the City of this proposed legislation is likely to be several million dollars per year higher than the estimate that we were able to produce using the 2001 data. The Administration maintains the position that strategic investments in tax reductions are necessary, but they must also be affordable. Degradation of the very core services that low income citizens rely upon every day would offset the economic benefits of tax reductions. The tax reductions included in the proposed five-year plan provide an 8 Whole - 5/19/04 - Bill 040397 investment in our future, while protecting our services and fiscal health. The cost of any cost tax reductions beyond those in the proposed plan must be paid for with offsetting revenue increases or expenditure reductions. We need to put the cost of this particular ordinance into perspective. The process of right-sizing recreation facilities and cutting a fraction of the Recreation Department's '05 budget has been a difficult one. Just imagine what finding ways to compensate for the estimated full annual cost of the proposed ordinance, which is $75.8 million, would be when, that amount is greater than the projected FY '09 budgets of the entire Free Library system and the Recreation Department combined. We would not be able to find expenditure reductions of that magnitude without serious disruption in service throughout City government. And it is for this reason that we cannot support this 9 Whole - 5/19/04 - Bill 040397 bill. This concludes my testimony, and I'll be happy to answer any questions.
Thank you. Are there any questions from members of the Committee? Of course, Councilman Cohen.
Thank you. Commissioner, let's assume for a moment that the City had been found to have been stealing money from somebody. Would you say that stealing ought to continue because the money is needed, and we can't stop taking it improperly? Or would you feel that justice would require that something happen?
If someone were in violation of the law, I would certainly want to have that law enforced. And stealing is a violation of the law. 10 Whole - 5/19/04 - Bill 040397
And you would agree that the practice should be stopped.
Yes. But you don't think that fairness and equity in taxation means anything, and that if it's been found that a policy is unfair to groups of people over a long period of time; and money is therefore, at least in the mind of people who study fairness in taxes, been wrongfully taken from them, you say, well, it's got to continue; we are now depending on the wrongful taxation.
I'm not addressing this as an issue of fairness or unfairness. I'm addressing this as an issue of affordability.
Well, don't you think that you have to deal with justice and fairness in your position? You have a good reputation. I'm sure you couldn't have gotten that if 11 Whole - 5/19/04 - Bill 040397 questions of fairness were not involved.
I appreciate the compliment. I think try to fairly enforce the law as the law exists.
Well, do you think there's anything fair about what's been called one of the most regressive taxes that exists in the United States, and that's the City's wage tax, because the rich pay the same level that the poorest person earning a dollar a year would pay.
I can appreciate your concern, but from my perspective, I'm going to enforce the law. I'm Looking at this in terms of what the law is, and fairly enforcing an existing law. It's your determination here from City Council, and with the Mayor, in terms of what that law should look like. And my comments here are based on whether or not this particular legislation would be affordable at this point in time.
Well, is it ever affordable to do something wrong, whether 12 Whole - 5/19/04 - Bill 040397 it's a law or an ethical principle? People quarrel whether something is technically a legal violation or whether it's an ethical one, or whether it's just a moral, unfair thing to do. Don't you think a government official, to whom is charged the quality of the life in the City, has a responsibility for the level of the quality of life?
That is one of the things I'm concerned about, in terms of providing advice about what the cost would be of this legislation. It's then up to others to indicate whether or not we can afford that cost or what we would forego if we would actually enact this legislation as a City government.
See, Commissioner, I think it's everybody's responsibility, whatever level they work in government, to make sure that as a result of their being employed and representing the government they're helping to improve 13 Whole - 5/19/04 - Bill 040397 the life of Philadelphians. And I submit to you I would believe it would be well within your duties to say this is a very unfair tax. This is what, for example, Democrats have been railing against, per the president's tax cut on the income tax, because rich people and poor people receive the same benefits. And that's what this tax is about here. Poor people pay the same dollar amount. And to a woman who's the sole parent of a child, every dollar counts; but you know, to an affluent person and certainly to a rich person, a dollar may mean nothing. Therefore, we've understood that progressive taxation bears relevance to the amount of money somebody owns or earns, and the tax is to be fair or not equal. They're called regressive taxes. That's why there's so much feeling against sales taxes because they hit the rich and the poor the same amount in dollars but 14 Whole - 5/19/04 - Bill 040397 vastly different with respect to their impact on life. And therefore, I believe that now that people understand the unfairness of this wage tax, everything has to be done first to get rid of that unfairness, and to treat those poor, lower income people, working people who are getting no benefits from working, because many cases when they leave welfare and begin working, they actually lose rights, because they lose the medical powers they get under relief, and other assistance that welfare offers. They go out to work, and they find that they're less able to even help their families than they were before. Now, there's something wrong with that tax system that does that, isn't there? And you're saying that as a tax official, all you're interested is in pouring the money in; you don't really care how it comes along because Council has enacted a law. You're going to let the 15 Whole - 5/19/04 - Bill 040397 Mayor and the Council worry about fairness.
Well, I'm concerned about whether there are enough funds coming in to cover the services that will actually go to support some of the concerns and interests of many of those same people. If we don't have the fund coming in to provide --
-- services, library services, trash pick-up, a lot of the things that benefit these very people, there are other issues that will come to play and they won't have the services that they need.
And from a policy perspective, that a determination needs to be made about which is going to take precedence.
Why should you conclude that because there's less income we have to cut services of poor people? 16 Whole - 5/19/04 - Bill 040397 Why don't we think in terms of economics? Do you think maybe of raising taxes of the wealthier or of maybe cutting certain services that the wealthy people get.
Those are other alternatives that can be considered. And I'm trying to lay out for you and other members of Council what the cost would be of this, in terms of reduced revenue. There are other ways of balancing, but if we did this without making other cuts or addressing other revenues that would need to increase, this --
Shouldn't Council and the Mayor be putting their attention on that? If the cuts have to be made, should the cuts be not for the services that poor people need or low income people, but that people have the money to provide themselves?
That's the decision that needs to be made from a policy perspective, yes.
You're welcome. Are there any other questions of the Commissioner? (No response.)
Our next witness is Steve Herzenberg. Doctor. I'm sorry. Apologize.
Good afternoon. Please identify yourself for the record and proceed with your testimony.
I'm Stephen Herzenberg, Director of the Keystone Research Center. I appreciate very much the opportunity to testify before Council here today on the question of Bill Number 040397. 18 Whole - 5/19/04 - Bill 040397 The Keystone Research Center is a Pennsylvania based nonprofit, non-partisan, economic and public policy organization. I have a Ph.D. in economics from M.I.T. and have spent part of the last eight years analyzing Pennsylvania's state and local tax system, as part of the work of the Keystone Research Center.
Most of the work that Keystone does, including on tax policy is online at www.keystoneresearch.org. Before getting into the specifics of the bill in question, I want to make a couple of remarks about the background to the comments that I'll make about the bill. The first is that when Keystone considers tax policy, it does so based on a set of values and principles. One of those tax principles that's particularly relevant today is vertical equity. That is, in general, tax rates should rise with ability to pay. Another dimension of Keystone's tax research is that tax policy has to be used 19 Whole - 5/19/04 - Bill 040397 to help communities, regions, and the state as a whole cope with whatever the particular challenges, social and economic, that they face at this point in history. So right now in Philadelphia, in the whole metro area, in Pennsylvania, in the U.S., one central challenge is the rise of wage inequality, and the rise of family income inequality. That historical reality means that vertical equity, a long-standing tax principle, is more important now than ever. Another dimension of the specific challenge that the City of Philadelphia faces today is sprawl, that is, the outward movement of people and jobs away from older communities, including the City of Philadelphia, which has consequences like community breakdown, the erosion of regional competitiveness, and the concentration of poverty in older communities like the City of Philadelphia.
I missed two words I think you used after you said, in considering generally you were concerned if you find a rise of... And I didn't get the rest of it.
Okay. Inequality. So, the bottom line is that if you look at trends in wages in the last 11 years, what you find in Philadelphia, in 12 Pennsylvania, and the nation is that wages 13 have been rising much more rapidly at the 14 top than in the middle, and have been 15 rising even more slowly at the bottom. 16 Another related aspect of that is 17 when you look at family income inequality. 18 So, for example, if you look at the 19 economic pie and how much that economic pie 20 has increased in the past 25 years, what 21 you'll find is that the lion's share of the 22 increase in the pie has gone to the most 23 affluent folks. That reflects what's going 24 on in our -- 25
The most affluent, the richest folks. So, tax policy today takes place in a situation where we're growing apart economically. So, what that means is that the traditional use of tax policy to achieve better equity after taxes than before taxes -- Taxes are used, among other things, as a vehicle for redistribution. And what I'm saying is that because we have been growing apart as a City, and as a state, and as a country, what that means is that the use of tax policy to counteract, you know, the rise of inequality is more important than ever. That was just my first starting point. The second starting point, in terms of the challenge for Philadelphia is, again, this issue of older communities being in decline. When you understand that problem, what it means is that older communities, 22 Whole - 5/19/04 - Bill 040397 including the City of Philadelphia, cannot reverse their loss of population and tax base on their own. So to the extent that you think about tax policy, to the extent that the City Council thinks about tax policy in a very narrow box, what should the City of Philadelphia do on its own? It's going to be confronting a series of very difficult choices. The question -- When you don't raise the debate above the level of the City, then you're faced with choices like, where do we want to be on a spectrum where taxes are too high and services are too low. It's only when you can over time shift the debate to regional tax policy and to state tax policy. That gives City of Philadelphia and other older communities the opportunity to put in place policies that really will fully restore community well-being in the City. So, part of the reason for saying that is that if Philadelphia operates based 23 Whole - 5/19/04 - Bill 040397 on the presumption that if it will just cut taxes and rely on the magic of the market and supply side economics, to bring people and tax base into the City, that's an illusion. That kind of solution is not going to happen with the City of Philadelphia using its own tax policies as an instrument. So... And that's an important part of the backdrop because --
Why doesn't it work for the City, if it works for the state and Federal Government?
Well, it... The whole combination of forces that have been well documented, for example, for all Pennsylvania older communities in the Brookings Institution report that was done at the end of last year called Back to Prosperity, what that report lays out is a whole range of education funding, land use, 24 Whole - 5/19/04 - Bill 040397 tax and economic policies, that all contribute to older communities in Pennsylvania, not just the City of Philadelphia, losing people. And we're losing tax base. So the bottom line of that report is that if you really want to reverse those tendencies, you need a systemic solution. You need a solution in which folks within older community but also within whole regions, and in the state as a whole, come together with a set of responses that are equal to the pressures bearing down on older communities. Now, again, for me in this discussion of targeted tax relief today, that has a couple of implications. One is that a real challenge for the City Council and other leaders in Philadelphia is how can you get at the front of the train that's trying to start this movement to renew all older communities in Pennsylvania, that that policy action is very, very important to the City of 25 Whole - 5/19/04 - Bill 040397 Philadelphia. But the other implication is to say that debates about tax policy, and the wage tax in particular, should not take place based on the false assumption that if we, for example, just cut the across-the-board wage tax enough, magically the whole City will rebound. That's just a false assumption. And that false assumption, I think, is part of what -- is one of the reasons that people, when they think about tax relief, don't want to do targeted tax relief. They want to do across-the-board tax relief because they want these magical supply effects to bring the City back. And what I'm saying is that way of thinking is operating based on a false premise. And so, when you abandon that false premise and revisit the issue of equity, with respect to the wage tax, you come, at least in my view, to a different conclusion which is that the targeted tax relief, you know, is something that makes Whole - 5/19/04 - Bill 040397 sense for the City of Philadelphia, and that based on values, including equity, that's something that the City should adopt. Now, with that as backdrop, what I'm going to do in the next part of my remarks is summarize some analysis that is detailed in two briefing papers on targeted tax relief that is a -- that are available along with my testimony. So the first of those briefing papers walks through the numbers, the equity case for wage tax forgiveness. There the evidence is marshaled that the City of Philadelphia and low income people in the City of Philadelphia desperately need targeted tax relief. So, the core of that case is based on facts such as 43 percent of Philadelphians have incomes below 200 percent of the poverty line, according to the 2000 census. It's that group that would benefit from targeted tax relief. Second, taking into account all 27 Whole - 5/19/04 - Bill 040397 state and local tax -- state and local taxes, the tax rate on a Philadelphia family of two adults and two school age children with an income of $25,000 -- that's a low income family -- that tax rate is over percent. 8 That's the fourth highest out of a 9 group of 51 cities examined in a recent 10 comparison of the largest city in every 11 state, plus the District of Columbia. The fourth highest tax rate on a low income family is in the City of Philadelphia. 5 times the tax rate on low income families in the group of 51 cities as a whole. 28 times the average for the 51 cities. So the reality is, Philadelphia is a high-taxed state, by comparison with these other cities. But taxes are substantially higher for low income families in Philadelphia, relative to low income 28 Whole - 5/19/04 - Bill 040397 families in other cities, substantially higher than the relative tax rate for high income families.
In fact, measured by that ratio, the tax rate on the bottom to the tax rate on the top, Philadelphia has the 15th most regressive state and local tax system out of that group of 51. And then the final point is the targeted tax relief that would be phased in using the provisions of Bill 040397, it would make Philadelphia's tax rates more equitable, relative to other cities, but it is a very modest proposal. The end of the bill being fully phased in, Philadelphia's tax rates on low income families would remain above the average for that group of 51 cities. So, from our perspective... And again, all the details of those calculations I just summarized, are in that briefing paper number one. But from our perspective, when you look at all that evidence, the case for 29 Whole - 5/19/04 - Bill 040397 targeted tax relief -- if you're going to do tax relief, do targeted tax relief -- is compelling on equity grounds. The second briefing paper takes a look at a second benefit of targeted tax relief. And that is the way that it would boost consumer demand in the City of Philadelphia and would boost neighborhood economies. So, again, for the details, go to that second briefing paper. But here's the essence of the argument. There are four basic factors that drive the conclusion that targeted tax relief stimulates the City economy more than across-the-board tax relief. The first is the targeted tax relief, more of that money goes to people in the City. That's because eligibility for targeted tax relief is based on how affluent you are, and there's more lower income in the City than among the commuters that come into the City. The second factor is that when you 30 Whole - 5/19/04 - Bill 040397 do across-the-board tax relief, that means that higher income taxpayers, when it comes to itemizing their deductions, are putting down a smaller number for their City wage tax that comes off their Federally taxable income. Because of that effect, percent, 9 an estimated 20 percent, of broad based 10 wage tax release just goes straight to the 11 Feds. With targeted tax relief, 12 essentially none of it leaks out to the 13 Feds. 14 The third factor is that lower 15 income residents spend almost all of the 16 tax relief they get; so, whereas, higher 17 income residents are more likely to save 18 part of what they get. 19 So... And then the last factor is 20 where people spend the money they get. Lower income residents are likely to spend a higher share of what they spend in the City. They're not going on vacation and trips or out on business out of the City, as much as higher income folks. 31 Whole - 5/19/04 - Bill 040397 So, when you put those four factors together... And again, you can look at my testimony for a summary, and you can look at the briefing paper for the details. But the bottom line is, when you follow through those four effects, it means that a dollar of targeted tax relief leads to 66 cents spent in the City; whereas, a dollar of across-the-board tax relief leads to only spending a quarter, that is, 12 cents in the City. 6 times greater, with targeted 17 tax relief. 18 The next part of my testimony 19 addresses the debates about the benefits, 20 the long-term benefits, supply side 21 benefits of across-the-board tax relief. 22 And there has been a fairly extended 23 back and forth, with a couple of rounds of 24 back and forth, between the Keystone 25 Research Center and E-Consult, first in the 32 Whole - 5/19/04 - Bill 040397 context of the Tax Reform Commission deliberations and now here today. So, I'm not going to try to dive into the technical details of that. I'm going to suggest that folks look at the testimony, and then this will be written up as a third briefing paper. But let me try to explain the core common sense issues.
The first and perhaps most critical issue is that the models that have been used to estimate how much overtime cuts in the wage, the overall wage tax would increase the tax base because more people end up in the City, those models leave out many of the important factors that actually drive whether or not people come into or leave the City. Any, I think, lay person with a lot of knowledge of the City of Philadelphia knows that the tax base in the City is influence by a range of different variables. Taxes are part of the story, but so are schools and the quality of schools. So 33 Whole - 5/19/04 - Bill 040397 are the quality of other services. So are crime rates. So are issues like race. And so, another factor is the extent to which the Federal and state government provide support to the City of Philadelphia. So a full model of the tax base in the City of Philadelphia, which is intending to estimate, well, how important are tax rates, has to take into account these other factors. If you leave those out of the equation, then what happens, potentially, is that the coefficients, the numbers that come out of the estimate that tell you, well, how important are tax rates to the flow of people in and out of the City or to the tax base long term, those estimates get distorted. And in practice in this case they probably get inflated, so you get an exaggerated estimate of the impact of wage tax cuts, in terms of across-the-board wage tax cuts, in terms of stabilizing or 34 Whole - 5/19/04 - Bill 040397 growing the City's tax base. And that's the bottom line. Now, the Tax Reform Commission made some comments in its report, based on testimony to this effect, that I presented before the Tax Reform Commission. As laid out here in my written testimony, our basic view is that those responses are simply not convincing. One of the fundamental problems here is really the process by which the tax analysis has been done. You can go back to the Economy League which hired E-Consult to do some tax analysis about three years ago. In building a network, the Tax Reform Commission hired E-Consult, and now the City Council has hired E-Consult. And if you look at that process, at least from the outside, what it looks like is you have a situation in which a group of folks that favor across-the-board tax relief have hired a tax consultant that knows what the client favors. And so, from the outside you can't 35 Whole - 5/19/04 - Bill 040397 tell... you have no confidence that what's really going on is an objective analysis. The concern is that what's happening is that numbers are being generated to support a preconceived view. Now, in our view, there is in fact a model of a different kind of process of thinking through tax policy, that is more transparent and balanced and open. And that's actually -- That model is something that Keystone participated in, in terms of analyzing state tax policy. We were part of a business/labor tax policy call PA21 over the past year or so. That project was jointly sponsored by the Business Roundtable, the Allegheny Conference, the largest business organization in Southwest Pennsylvania, the Pennsylvania AFL-CIO, and the Pennsylvania State Education Association. And the technical team on that project included Keystone, included Ernst & Young, the accounting firm and consulting firm. Most of the clients they deal with 36 Whole - 5/19/04 - Bill 040397 usually are large companies that are looking to minimize their taxes, and then the Pennsylvania Economy League. That project produced a very careful and balanced report which is available on our web site, as well as on lots of other places. And folks who read that report can have confidence that when something is said about what we know from research on taxes, that... vetted by us, vetted by that whole technical team, that there's a strong statement made about taxes and them having a certain impact. You can be confident it's true.
You will also find in that report a lot of very careful language, recognizing that in lots of cases, for example, in terms of how much investment response to cuts in business taxes. There are lots of cases where we don't know very much. That process hasn't happened in the debate about Philadelphia's taxes in general or its wage taxes in particular. 37 Whole - 5/19/04 - Bill 040397 And we would be quite happy to be part of a process that attempts to achieve a more balanced and credible and transparent analysis of the City taxes, including the wage tax. Okay. The bottom line here. There's a table at the end of my written testimony that says, based on what we know now, that when you compare targeted tax relief with across-the-board tax relief, we think that the evidence comes down in favor of targeted tax relief. And just to summarize those key pros and cons, with targeted tax relief, the tax relief goes to the people who need it most, the people below a family self-sufficiency standard as commonly defined, which is about 200 percent of the poverty line. If you look at across-the-board tax relief, only 12 cents on the dollar goes to people who need it most. If you look at the demand impact, again, 64 cents on the dollar with targeted tax relief creates demand in the City. Only 25 cents on the 38 Whole - 5/19/04 - Bill 040397 dollar of across-the-board tax relief creates demand in the City. And then the last issue, the issue in a sense on which proponents of across-the-board tax relief have staked everything, that's the long-run impact on the City tax base, the fact is, based on the models that are out there now, we don't really know how responsive across-the-board tax -- how responsive -- sorry -- the tax base and the movement of people would be to across-the-board tax relief, nor do we know, to be fair, what the impact on population movements would be of targeted tax relief. There is one dynamic that might be important, is that tax forgiveness actually ends up benefiting a lot of middle and even upper income seniors. The reason for that is because those folks, their pension income and investment income, is not taxed under the wage tax. So as long as their wages are below the income tax forgiveness thresholds, they 39 Whole - 5/19/04 - Bill 040397 qualify for targeted tax relief. What that means is that targeted tax relief might well reinforce the movement of empty-nesters back into the City. So that balances against whatever long-run dynamic benefits would result from across-the-board tax relief. You know, it's also worth keeping in mind that the amount of money -- Our estimate is that you could fund -- The amount of money it costs to do targeted tax relief is on the order of magnitude would cost the same as about a two-tenths of one percent cut in across-the-board wage tax relief. That amounts to $200 for somebody who makes $100,000. Now, it may be that movements of mid and upper income people into and out of the City of Philadelphia are sensitive to amounts like $200. Personally, I suspect they're not very sensitive to amounts like that. So, to end with a comment that links back to where I started, we think that the 40 Whole - 5/19/04 - Bill 040397 evidence we've marshaled suggests that if you're going to do tax relief, that targeted tax relief, as laid out in this bill, should be the first priority. We also think that, in terms of improving the options that the City faces long-term, in terms of a balance between taxes and services, and in terms of promoting community well-being more generally, the challenge there is for the Council and other leaders in the City to be at the front of the train, in terms of the Renew Pennsylvania Movement, the Renewal Older Communities Movement. Keystone would be thrilled to be a partner with City Council, in terms of a deeper analysis of all of the forces that are bearing down on the City and other older communities, but the City in particular.
And also, we'd be thrilled to be part of a creative discussion of the innovative kind of policy responses at the City, region and state level, that could 41 Whole - 5/19/04 - Bill 040397 really get the City back to a situation where taxes are at an affordable level, and in addition, the City has the kind of services it needs for a vibrant community and the high quality of life. Thank you very much.
Thank you very much. Are there further questions? Councilman Cohen.
Thank you, Madam Chair. In view of the differences between economic theorists as to the impact of an overall across-the-board tax cut and targeted tax cuts, how do you propose that that be dealt with by government officials? What would be the standard that government officials, do you think, ought to concern themselves with?
Well, again, our starting point is that on equity grounds, the kind of structural reform that's represented by this bill should happen 42 Whole - 5/19/04 - Bill 040397 today. There's just no excuse, at a time when inequality is growing and when so many families are struggling to get by, there's just no excuse for the City of Philadelphia to have a tax rate on low income families that's substantially higher, relative to other communities, than the tax rate for people generally. So I think the hard question for Council -- I mean, there is -- You know, it's a question of phase-in. You know, how quickly can you get to a point where you are... the state tax forgiveness program, which is the ultimate goal of this bill. And I think there's -- You know, obviously that's a decision that's in the hand of the Council. And to some extent that can be fine-tuned based on the revenue realities in the years ahead. But one example I would point to which would lead me to think that the Council could confidently put in place this bill, is at the state level the business 43 Whole - 5/19/04 - Bill 040397 community successfully lobbied some half a dozen years ago for a phase-out of something called the Capital Stock and Franchise Tax. They put in place a very long phase-out because the phase-out of that tax has a big revenue impact. What they've done since then, very sensibly, is based on the immediate revenue picture the state faces, they've slowed that down several times, you know. But what they did, and the business community wanted, and the business community got was on the books eventually, as revenues permitted, we are getting rid of this tax because Pennsylvania is one of only a few states that has both this tax and a very high corporate income tax, et cetera, et cetera. So they put in place the structural reform. And the legislators didn't give up the right to, again, play with the phase-in, based on what's affordable; but they locked in that structural reform that eliminates this tax, is where Pennsylvania 44 Whole - 5/19/04 - Bill 040397 needs to go. Well, my view on the wage tax is sort of analogous. It's like structural reform that locks in wage tax forgiveness is long overdue. You know, if... It's always true that if revenue pictures disappoint, as perhaps they are this year, then you can revisit something like a phase-in. But years from now, a generation 12 from now, this should be fully phased in, 13 and the members of Council who make that 14 possible would rightly be remembered 20 15 years from now, for having done something 16 historic. 17
Thank you 20 very much. Are there further questions for this witness? (No response.)
If possible, perhaps if there's other testimony, it may 45 Whole - 5/19/04 - Bill 040397 be fitting to come back and report on it. For example, I took you to say that if there were questions about affordability at any given time, as long as the main structure was locked in so that things could occur and people agreed the time was ripe for it, that that would be one sound approach.
Thank you, certainly. And thank you for agreeing to stay around.
My name is Bettina Pearl, and I am the policy analyst for the Pennsylvania Family Economic 46 Whole - 5/19/04 - Bill 040397 Self-sufficiency Project, an initiative of PathWaysPA. I am here to express the agency's strong support for Bill Number 040397. I want to thank you very much for giving us the opportunity to testify before you today on the importance of wage tax relief for low income families in Philadelphia. With me is Elizabeth Crespo who will, after my remarks, briefly describe the impact of wage tax on her personally. PathWaysPA, a multi-service agency headquartered in Swarthmore, is one of Greater Philadelphia's largest providers of residential and community based services for low income women and children, serving about 2,000 families annually, with a full complement of social services, skills training, education and employment assistance, teen parent support and outreach, and residential services. Through its Family Economic Self-Sufficiency Project, PathWaysPA is the 47 Whole - 5/19/04 - Bill 040397 state coordinating agency for development and publication of the Pennsylvania Self-sufficiency Standard. Since the beginning of the project in 1997, we have produced three editions of the Self-sufficiency Standard for Pennsylvania, which reports how much income is needed for a family of a given composition in a given county to adequately meet its basic needs without public or private assistance. In addition to publishing research on the Self-sufficiency Standard, PathWaysPA publishes tools designed to help individuals and communities establish and attain self-sufficiency goals, and conducts analysis of and advocacy on policy areas that the economic well-being of families and communities. PathWaysPA strongly supports this bill. As we expressed to the Tax Reform Commission, a wage tax exemption for very low income families is warranted on both moral and policy grounds. 48 Whole - 5/19/04 - Bill 040397 Those eligible for a reduction in the wage tax under this bill are earning far below what it takes to make ends meet in Philadelphia. Our latest self-sufficiency research shows, for example, that for single parent with an infant, the self-sufficiency wage is $30,186 annually. A single parent with an infant and a pre-schooler would have to earn $39,526 annually in order to make ends meet. The self-sufficiency wage for a two-parent, two-child family with an infant and a pre-schooler is $44,123. The families covered by this wage tax exemption are those making significantly below self-sufficiency wages. Under the bill, a single parent with two children would be eligible for the reduced tax rate, if he or she were earning under $24,000. A family with two parents and two children would quality if they earned up to $31,000. 49 Whole - 5/19/04 - Bill 040397 By enacting this legislation, you would be bringing the wage tax closer in line with the principle that families should be taxed only when they have earnings sufficient to cover their own basic needs. Of course, the lower rate for low wage earners in this bill would have the effect of significantly increasing the adequacy of their wages. For a Philadelphia family with a full-time minimum wage income, for example, which amounts to about $800 of gross income per month, the wage tax owed would go from about $36 of that 800 currently, to $12 of it at its full implementation, a savings under the bill of about $24 a month. That's a significant amount of money for families at these income levels. It could help pay for additional food the family needs, utility bills, the cost of transportation to and from school or work, child care expenses, or help to reduce a family's debt. 50 Whole - 5/19/04 - Bill 040397 For some families it could mean being able to save assets and begin to move up the economic ladder. Philadelphia's growth ultimately depends on the ability of our lowest income working families to move toward economic self-sufficiency.
This deep reduction in the wage tax as proposed for low income workers would enable more Philadelphians to spend more money in their neighborhoods and to contribute to the economic vitality of the City. Imposing the wage tax on low wage earners undermines the principle of making work pay, hurts families struggling to attain self-sufficiency, and keeps money out of the hands of local businesses. In the interest of equity and fairness, and in keeping with the goal of growing Philadelphia's economy, we urge City Council to take a modest step toward easing the financial burden on low wage families, by approving this bill. 51 Whole - 5/19/04 - Bill 040397 Thank you very much. I'd like you now to turn to Ms. Crespo, who has some just brief remarks about her own personal situation, and the impact of the wage tax, and this bill on her situation.
Hi. Good afternoon. My name is Elizabeth Crespo, and I work for a nonprofit organization. I am here today to advocate on behalf of the working families. I'm a single mother myself with five children. And based on the wages that I earn that are basically my gross wages were about, like, $950, I basically go home with 730. And being a single mom with five children, it would basically help with the pass of this bill with food costs, and 52 Whole - 5/19/04 - Bill 040397 allowances for my children, and lunches, and any debts that I have acquired. I am here today because Mrs. Pearl asked me to come and speak on behalf of the working families, to see that it would be very helpful for this bill to be passed. It would help us very much.
Thank you very much. Any questions for the witnesses? (No response.)
I guess that's the way the City insulates itself from learning about life by not listening to people. I'm sorry she's gone because she expressed her opinion that was not part of her duties, the fairness or the equity. Okay. but I think she might have 53 Whole - 5/19/04 - Bill 040397 been influenced if she heard your two voices, as well as the Keystone expert.
Thank you. We will try to communicate with her as well. Thank you.
Our next witness is Edith Finkelstein, Action Alliance for Senior Citizens.
And while Miss Finkelstein is coming forward we would be remiss if we didn't note Stan Shapiro and say a special good afternoon to you. It's great to have you back. See, we fixed the place up for you, Stan. Good afternoon.
Good afternoon. Good afternoon, Councilman Cohen. I'm here on behalf...
...Miss 54 Whole - 5/19/04 - Bill 040397 Finkelstein.
My name is Edith Finkelstein. And I'm a board member of the Action Alliance of Senior Citizens of Greater Philadelphia. Esteemed members of City Council, I'm a member of Action Alliance of Senior Citizens, the City's oldest and largest grassroots senior citizen and retiree organization. With over 30 years of fighting to improve retirement living for our senior citizens, Action Alliance has a proud history of achieving results involving our members, to defend their interests and to provide a vehicle for their contribution to the betterment of our communities across the City. I don't have a lot of statistics, like the Keystone Research, but I'm here to offer Action Alliance's thinking on the proposal submitted by Councilman Cohen, and endorsed by other members of Council, to reduce the City Wage Tax on low income 55 Whole - 5/19/04 - Bill 040397 residents of the City. We have something to say about that, but let me first give you a brief background so you can understand where we as senior citizens are coming from. According to the 2000 Census, Philadelphia's home to about 268,000 people over the age of 60. Philadelphians, just like Pennsylvanians, do not move out when they retire. We stay here, aging in place. We are partially lured to stay here because of the wonderful programs that over the years organizations such as ours have been able to win to improve life for people in retirement. Such programs include the Philadelphia Gas Works, percent senior 19 citizen discount, free transportation from 20 SEPTA during off peak hours, the state's drug program PACE and the Medicare overcharge measure that protects seniors from rising health care costs. In Philadelphia a whopping majority of people over 60 years old own their own 56 Whole - 5/19/04 - Bill 040397 home. The exact figure, according to the Philadelphia Corporation for Aging is 78 percent, while percent rent. 5 7 percent of the City's total. 5 10 percent. 11 The housing stock owned by seniors 12 is deteriorating quite rapidly, with 53 13 percent of seniors living in houses that 14 are more than 60 years old. 15 Poverty among the elderly is acute, 16 with almost one-fifth of all seniors living 17 below the Federal poverty line, and women 18 account for twice the number of people 19 living in poverty. 20 In addition, we are seeing an 21 increasing trend of retired people coming 22 back to work either full-time or part-time, in order to afford basic necessities, such as food and medicine. The total percentage in the work force is 10 percent. 57 Whole - 5/19/04 - Bill 040397 It is with this background that I'm here to express Action Alliance's official stance on this particular tax reform bill 5 now before you for consideration. I am one of those working seniors. I work part-time for the University of Pennsylvania's Annenberg Center as an usher. 9 hours making $238. 63 for the City Wage Tax. 51, leaving my take-home pay at about 200. For thousands of senior citizens like me in Philadelphia, just as much as for single parents with children, a relief on one of those taxes will go a long way in helping us pay for basic necessities, such as food, rent and medicine. We support giving low income working people a break on the wage tax because that will help many people in our City stretch their earnings, including that 10 percent 58 Whole - 5/19/04 - Bill 040397 of seniors who are forced to go back to work, like myself. We believe that Councilman Cohen's bill will also contribute to the local economy. Low income people like me will be able to spend that extra money right here in Philadelphia. I spend all of my money in Philadelphia and will be glad to spend that extra $10. We urge adoption of this bill. Thank you very much for your time.
Thank you very much. And we don't mind if you don't bring figures. We appreciate your wealth of experience and commitment to the seniors.
Our next witness is 59 Whole - 5/19/04 - Bill 040397 Casey Ellis, SEIU Local 36.
Good afternoon. My name is Casey Ellis. I am the communications coordinator for Service Employees International Union Local 36 here in Philadelphia. On behalf of SEIU Local 36, I wish to thank members of City Council for allowing to us address this session. First let me say that SEIU Local 36 believes that straight percentage taxes, whether sales or wage taxes, places the greatest burden on those who can least afford to pay. The City Wage Tax is just such a regressive tax, and SEIU Local 36 supports Bill Number 040397, introduced by Councilman Cohen, which makes the wage tax a little more progressive. The people who make up my union, Service Employees International Union, Local 36, are men and women who clean and 60 Whole - 5/19/04 - Bill 040397 maintain office buildings and museums. They staff residential buildings. They clean City Hall. We have members who work at the Science Center, and are visible out on the street cleaning Center City District, University City District. We have nearly 5,000 hard-working members who live and work in Philadelphia at approximately 200 locations. Because they have a union who fights to win fair wages and decent benefits, thankfully most of our members may not even qualify for the tax relief proposed by Councilman Cohen. But fair wages for janitorial work is not the norm in non-union buildings or the suburbs, where many City residents work. 50 an hour is typical for non-union cleaners. Most cleaners work 20 to 30 hours a week, without overtime, without medical benefits, without paid holidays or vacations. 61 Whole - 5/19/04 - Bill 040397 In other words, the people who service buildings in and around Philadelphia, but who do not have wages regulated by contracts, are working just to maintain a life of poverty. These workers can't afford decent food, clothing and housing for their families. These are not the unemployed or homeless. These are people who work every day, buy goods and services, and whose job is a service to the community. These people carry enough burdens in life. They should not have to carry the added burden of a City wage tax imposed at the full rate. Let me tell you about Ozia Cain. Ozia Cain had a job for decades at Pinkus Brothers Maxwell. Garment workers at Pinkus Brothers created fine men's suits. They made fair union wages, and were able to raise families and strive for the American dream. But as we know, Pinkus Brothers Maxwell, although they tried to stay on, 62 Whole - 5/19/04 - Bill 040397 was one of the last major garment shops to close their operations in Philadelphia. And when they finally pulled the plug, several hundred workers were left jobless. Ozia found a job as a cleaner. m. m. at the Franklin Institute, and then she works from 5:00 in the afternoon to 9:00 at night at 401 City Avenue. I called Ozia today and asked if she'd be able to come, but she's not well today, and she went to work this morning. She needs to rest so she can go to work this afternoon. 50 an hour and only getting hours work per week. That comes to 20 less -- a little over $10,000 a year, 21 certainly not enough to raise a family. 22 So you see, being in a union doesn't 23 even guarantee a comfortable middle class 24 lifestyle. 25 Low paid workers don't drive to the 63 Whole - 5/19/04 - Bill 040397 suburbs to buy groceries. They don't travel to Cherry Hill or out to King of Prussia to shop. They shop where they live, and they live in Philadelphia. When they get a tax cut, the extra money gets spent in the City, and that benefits local businesses. The Mayor's Action Center for Business reports every dollar spent locally produces $10 in economic investment. I don't have the statistics to back this up. This is a report, though, that came from the Mayor's Office.
The one half of one percent cut in the City's revenue, when calculated to include the approximately percent of 18 Philadelphians living below the poverty 19 level, could reap $730 million in economic 20 benefits to blighted neighborhoods. 21 SEIU Local 36 supports Councilman 22 Cohen's bill because it is morally right. 23 It removes some of the tax burden from those who can least afford to pay, and we support the bill because the long run 64 Whole - 5/19/04 - Bill 040397 economic benefit to the City makes a good fiscal policy. We encourage City Council to adopt this bill. Thank you. )
Thank you very much. Are there any questions? (No response.)
Our next witness is Jonathan Stein. With him at the table is Juanita Alvarado.
Good afternoon, Councilwoman Blackwell, and members of City Council. I come before Council this afternoon, both as a member of the Tax Reform Commission, past member, who was appointed by City Council to the Commission, and who conscientiously put in hundreds of hours of time into Commission 65 Whole - 5/19/04 - Bill 040397 work and deliberations, as well also as General Counsel of Community Legal Services, where we have served tens of thousands of low income City wage taxpayers. One such working taxpayer is Juanita Alvarado, age 63, to my left, who is with me today, who will suffer some of her views after my brief remarks. For a variety of reasons: Policy, fiscal and political, the Tax Commission's broad and costly wage tax cut bill appears struggling to stay afloat. But there is a wage tax bill that all on City Council can support and vote for in the coming days, and that is Councilman Cohen's bill, one which many of you have either co-sponsored or supported in the recent past. The Cohen bill provides for a targeted wage tax cut for those with incomes below $35,000 a year, which will reduce the wage tax through a delayed implementation, and then a phase-in 66 Whole - 5/19/04 - Bill 040397 beginning only in 2006, effective 2007 to 2011. Your vote for this bill will be a welcome clarion call for tax fairness and equity for those who cannot afford to pay this regressive tax. The reasons for supporting Councilman Cohen's bill are more compelling now than ever. And they are as follows: The first is that the targeted Cohen wage tax cut bill largely benefits City residents, in contrast to the Tax Commission wage tax cut bill which is a substantial wage tax cut for suburban residents of New Jersey, Montgomery County, Bucks County and Chester Counties. One of the most important facts about the Tax Commission's large wage tax cut that you won't find prominently advertised there in their report, is that according to the City Revenue Department, almost 40 percent of wage tax revenues comes from non-residents in the suburbs. The blunt meaning of this fact is 67 Whole - 5/19/04 - Bill 040397 that close to 40 percent of the Tax Commission's across-the-board wage tax cut is a significant wage tax cut for suburban residents, suburban residents who work here, who have chosen to move out of the City, out of our public schools, or decided initially to ever live here at all. No one in City Council chambers today represents the interests of those who live across the river in New Jersey or across City Line Avenue in Bryn Mawr or Lower Merion. You have every right to look after your interest of your constituents who are City residents, not those living in the suburbs. This fact gives you a clear choice of supporting the Commission wage tax bill 20 that will send tens of millions of dollars of City revenue dollars out to the suburban residents, the non-residents in the suburbs who will benefit from the Tax Commission wage tax cut bill or you could focus on Councilman Cohen's bill, wage tax cut bill, 68 Whole - 5/19/04 - Bill 040397 which will primarily and largely benefit only City residents, your constituents. The Cohen bill, because it is targeted to lower income and middle class wage earners under incomes of $35,000 a year, provides substantial tax relief to these City residents because they largely constitute the lower income wage taxpayers who benefit from the bill. A second reason is that the Cohen tax bill will more directly assist local and neighborhood businesses. Economists looking at the economic impact of the Cohen wage tax cut bill, especially in comparison to the Tax Commission's broader urban and suburban wage tax cut proposal, have found two market impacts that show how the Cohen bill 20 is better for local Philadelphia businesses. The first is that lower income residents will spend more to meet pressing immediate needs and save less out of their tax cut relief.
69 Whole - 5/19/04 - Bill 040397 The second is that lower income residents are more likely to spend their tax cut dollars in local businesses, therefore, helping neighborhood economies. The Tax Commission's tax cut bill, because it reaches into the highest of incomes, as well as into the more affluent suburbs, means that more of City revenues given back to taxpayers will be saved or invested in the stock market or spent with businesses located outside the City. This, too, offers those in Council another clear choice. The Cohen bill is simply better for local business. Three, the current wage tax bill is fundamentally about fairness and equity. The preeminent principles of tax fairness is ability to pay a tax. This is not a radical idea imported from Sweden or Berkeley, California. For over two decades conservative and liberal legislators, whether they be presidents or governors in Washington or Harrisburg, have all together agreed that 70 Whole - 5/19/04 - Bill 040397 the working poor and those somewhat above that level should not be paying a tax or a reduced tax on earned income. Those in Council know, more than anyone else in this City, what the costs of poverty are. And they are real costs. They are costs to all areas of government: the criminal justice system, social services, virtually every area of government. And all well know the costs that deprivation of necessities of life have on children's growth and development and well-being. The wage tax simply should not be a factor that contributes to poverty and deprivation among hard pressed families, and it should not be a penalty or a work disincentive for those struggling to make work pay and to get out of poverty through work. There can be no more equitable or fairer step for this City Council to take in tax reform than to adopt the Cohen wage 71 Whole - 5/19/04 - Bill 040397 tax proposal. Fourth, the Cohen targeted wage tax bill is not a budget buster and is fiscally responsible. Councilman Cohen, cognizant of current fiscal and political realities, has postponed implementation of his targeted wage tax cut bill to the year 2006, with the first refunds only coming into 2007 three years from now. It's a phased-in bill with refunds of less than $10 million in the first year, and a total estimated cost, five-year cost, of $70 million. And these costs can even be lowered, if the eligibility level is adjusted downward. The Tax Commission's wage tax cut and business privilege bill -- tax cut bills would be effective immediately, and would cost over five times this, over $330 million beginning in 2005 for five years, and many hundreds of millions of dollars more in lost revenues if adopted. If one is now concerned about the fiscal impact of tax cutting measures right 72 Whole - 5/19/04 - Bill 040397 now, certainly the Cohen wage tax cut bill 3 becomes a more prudent and preferred alternative. Finally, do you want across-the-board tax reform? Then support Governor Rendell's tax reform measures. Govern Rendell's tax reform plans should substitute for the Tax Reform Commission's wage tax bill. It cannot, though, substitute for Councilman's Cohen's because it does not provide the targeted wage tax relief for lower income workers. 9 percent, would narrow rates between residents and non-residents, and with no fiscal loss to the City. Across-the-board tax reform of the wage tax does reach into the suburbs, as noted above, where almost 40 percent of the Commission's wage tax cut will be paid to people living in the suburbs. This strongly suggests if you want 73 Whole - 5/19/04 - Bill 040397 across-the-board reform, to have a regional and statewide approach to tax reform where overall wage tax can be adjusted, concurrently with changes in the statewide personal income tax and with other state revenue programs. In conclusion, we should all ask what each of us has done in the past for you to get the Governor's tax reform program passed.
If the answer is not much or not enough, let's get together lend our support to the Governor at the same time as we set in motion through passage of Councilman Cohen's bill the future reduction of the wage tax paid by City working residents, who in our hearts we know should not be paying this tax. And as a very final thing before I turn it over to Ms. Alvarado to my left, let me just say, having spent hundreds of hours on the Tax Reform Commission, I don't think the Tax Reform Commission did justice to Councilman Cohen's wage tax proposal. 74 Whole - 5/19/04 - Bill 040397 And I say that because even though they looked at it very late in consideration, almost as an afterthought I have to say, they rejected it on very bogus grounds. The essence of why the Tax Commission rejected the Cohen proposal is that they said, we're going to rely on trickle-down economics. We're going to rely on essentially Reagan economics to give money to people across the board, including people at the top, and have a little of it trickle down to low income people. And they said, to my shock, they said, it doesn't make much difference if we give some money to low income people. What effect is it really going to have on their lives? I couldn't believe what I heard from people on the Commission who said that. I didn't hear it from one poor person's mouth on the Commission because there wasn't one poor working poor person 75 Whole - 5/19/04 - Bill 040397 on the Commission. I didn't hear it from the experts they consulted. I saw -- I didn't hear it from their staff people. But what they had the gall, in my view, to say was that this tax cut for low income working people would not make any difference on their lives. And with those words, let me pass it over to someone whose life would be made important, and who speaks for those many people who are not heard from the Tax Commission. Let's hear a few words now from Miss Juanita Alvarado, who lives in the Frankford area of the City. Miss Alvarado, Councilwoman Blackwell and others are prepared to hear you now, I believe.
Good afternoon, City Council President, Mrs. Blackwell, Mrs. Verna, Mr. Cohen. I have come to City Council today as a very hard-working 63 years old woman to ask you to please pass Councilman Cohen's wage tax bill. 76 Whole - 5/19/04 - Bill 040397 I say these are the personal experience of being what people call a working poor person. Because I was divorced, I have raised five children by myself, without any child support. For the last year, I 8 have worked as a certified nursing 9 assistant. 10 People ask me, why are you retired, 11 as you are 63 years old? 12 I say, I must work. I have no one 13 else to turn. 14 My job at the other nursing agency 15 pays you $6 an hour, and they don't give 16 more than 27 hours of work each week. My 17 gross weekly wage is just $157 a week. 18 It's such a little check, it's almost nothing. But the City wage tax take monies out of my little check. And by the end of the year, about $360 is taken out of my check. I also pay the City real estate tax on the house that I own on 1626 Harrison Street. 77 Whole - 5/19/04 - Bill 040397 I paid other taxes, like sales taxes. If my wage tax was reduced by Councilman Cohen's bill, I will use the money refunded to pay for my medicine that I cannot afford, and also be able to get to the dentist which I can't afford. My present medical insurance doesn't pay for medicine or dental care. My doctor some weeks ago wrote out a prescription for me, and because it cost $72, I did not get it filled. I will also use the wage tax reform to repair my house, as I have -- as I have exposed wire, and I have no ceiling in my bedroom. And I can see the roof being and water leaking through the roof. It really isn't fair to take taxes from poor working people. I hope you and other of City Council will think of people like me when you vote on Councilman Cohen's bill. Thank you for hearing my story.
Thank you 78 Whole - 5/19/04 - Bill 040397 very much. Are there any questions? (No response.)
Thank you very much, Mr. Stein, Miss Alvarado, for your testimony.
Our next witness is Richard Weishaupt. I hope I pronounced that right. Mr. Weishaupt, Director of Health and Human Services Division, Community Legal Services.
Good afternoon and welcome. Thank you for your patience.
Good afternoon, Mr. Cohen. Thank you for having me here today. I'm here to offer some additional testimony 79 Whole - 5/19/04 - Bill 040397 consistent with what the previous two witnesses talked about, particularly about the impact of the wage tax on working low income people, particularly people who are making the transition from welfare to work. Although the Tax Commission and others frequently talk about taxpayers, as opposed to low income people, most low income people pay a much higher proportion of their income for taxes than do more prosperous people. They pay sales tax. They pay property taxes. They pay Federal excise taxes on gasoline, on phone services, and on other utilities, that add up to a much more sizable portion of their income. The wage tax just adds to that burden, a burden that many people find increasingly hard to shoulder. Welfare grants, as I'm sure you know, currently pay about 34 percent of the Federal poverty level which is the lowest they've ever been since the Federal Government established that level in the 80 Whole - 5/19/04 - Bill 040397 1960s. Recipient families have not had a raise in their income since the end of 1989. Even with the passage of measures that allows recipients to deep 50 percent of their earnings, people lose all eligibility for cash welfare when their earnings exceed 68 percent of the poverty level. For the typical mother of two children, she loses her eligibility when her earnings exceed $806 per month. 27. I'm sorry there's a typo in my written testimony. 27 in wage taxes. 27 for a minimum wage worker, means that she has to earn another -- work another seven hours to earn that money back. That's seven hours that she can't be helping her children with her homework. That's seven hours that she can't be taking care of babies. That's seven hours more of 81 Whole - 5/19/04 - Bill 040397 child care she has to pay. Now, you heard my colleague, Jonathan Stein, talk about how the Tax Commission's response was, well, it's such a small amount of money it doesn't make any difference. 27 may well buy a winter coat for one of her children, or it might keep the lights on for a month, or pay the water bill or the gas bill. Living on the edge of destitution, that money means a great deal to our clients, who are faced every day, as we know, because our waiting rooms are filled with people asking us to help them with their evictions, their utility shut-offs, or to help them feed their hungry and sometimes ill-clothed children. It's become very popular these days for politicians of all political stripes to talk about how they want to make work pay. Well, here's one way that City Council can help do that, by eliminating 82 Whole - 5/19/04 - Bill 040397 the wage tax for those who are struggling to make ends meet. Since the changes in welfare policy in 1996, Pennsylvania and Philadelphia case loads have dropped precipitously. Pennsylvania's case load has dropped by 50 percent; Philadelphia's has dropped by more than 40 percent. Many more people who are still on assistance are also working part-time but can't earn enough to work their way off welfare. In fact, some people on welfare are working in subsidized jobs, where the money for their salary is paid for out of Welfare Department funds. We even tax those subsidized jobs. Most subsidized people work hours 20 a week for the minimum wage, and $20 dollars of that, of their meager earnings -- their meager earnings are about $400 -- wind up going to the wage tax. It is simply bad social policy to tax away earnings for people living well 83 Whole - 5/19/04 - Bill 040397 below the poverty level. Making them wage tax exempt would boost their disposable income and have an immediate positive effect. Ironically, people who are working and are receiving welfare not only have the wage tax taken out, but their benefits are deducted as if they are getting that money.
So, at the same time that they're having that $37 dollars taken out, their rent is probably going to be increased in public housing by $9, their food stamps are probably lowered by $9. All of the programs calculate benefits and eligibility based on gross income, so that Philadelphia residents have their food stamps adjusted downward and their rent increase based on earnings that never reached the low income people's pockets. In fact, they get reduced benefits, even though they never get the money that is similarly employed individual in the suburbs or any other part of the state 84 Whole - 5/19/04 - Bill 040397 would get in their pay. We urge you to end this inequity, and bring progressivity to the wage tax program in Philadelphia. Thank you.
Thank you very much, Mr. Weishaupt. (Applause.) Any questions? (No response.)
We've seen you around for many years. Thank you for your testimony.
Our next witness is Vanessa Brown, from the People's Emergency Center, Community Development Corporation. And she will be coming with a client, I believe.
Council people. I'd like to thank you for offering the opportunity for me to testify today. My name is Vanessa Brown, and I represent the People's Emergency Center or PEC. I am here briefly to talk about the benefits of tax relief for hard-working families, low income -- hard-working, low-income families of Philadelphia, and urge you to support Councilman Cohen's legislation on Bill Number 040397, which will reduce and eventually eliminate the Philadelphia Wage Tax on the citizens. PEC is Philadelphia's oldest and most comprehensive social service agency for homeless women and children, teenagers and their children. Since 1972, PEC has helped thousands of abused, abandoned and homeless women and children to rebuild lives of dignity, through programs that help them to help themselves. We work one on one with women and 86 Whole - 5/19/04 - Bill 040397 children to increase their opportunities for a better future with employment advising, workplace readiness workshops, computer skills, and training, placement and retention assistance which enhances their confidence and promotes self-sufficiency and economic independence. Philadelphia has one of the least equitable, least progressive tax systems in the U.S. Rather than promoting a tax system where a tax rates increase with income so that those with the greatest ability to pay higher tax rates, Philadelphia unfairly and unjustly targets working people least able to live on reduced income taxes. According to a report by the Keystone Research Center, Philadelphia taxes its poorest working citizens at a rate of 1.5 times higher than the norm found throughout the rest of the U.S. Out of 51 cities studied, only three imposed a higher tax rate on the low income families. 87 Whole - 5/19/04 - Bill 040397 While our poorest families see a large percentage of their earnings siphoned away, wealthier families do not feel the same burden. The Keystone report finds that a Philadelphia family making $150,000 is not taxed proportionately as much as a family of four making only $25,000. Those who can least -- Those who can least afford to be bombarded with an oppressive, regressive, and unfair tax system are hit the hardest. Thus, many Philadelphia families simply cannot afford to pay the wage tax and pay rent and still have enough available income to provide for clothes, food and other basic necessities. Many other families that we work with at PEC struggle to maintain their independence from public services, yet the wage tax undermines their ability to stay self-sufficient. For example, a minimum wage full-time worker with two children making 88 Whole - 5/19/04 - Bill 040397 five fifteen per hour typically brings home a little over $10,700 per year before taxes. Under the current wage tax rate set at 4.5 percent, these families lose an additional $482.04 before Federal and state taxes, yet if the wage tax was slowly reduced, as proposed by Councilman Cohen, the same wage earner would only have to pay $160.68, which would put $320 directly back into the hands of the hard working family. For those families on a limited budget, an additional $320 makes a real difference in one's life. Unlike welfare people, these families generally spend almost all of any tax reliefs. They are also more likely to spend that money in their local neighborhood businesses and investing in local economies. Tax relief targeted to low income families assists families to more toward self-sufficiency, while also investing in local economies. 89 Whole - 5/19/04 - Bill 040397 This is an issue of fairness, plain and simple. People should not be penalized for making less money than their wealthier neighbors. It is hard to understand why Philadelphia insists on squeezing its most vulnerable citizens more harshly than almost any other city in the U.S. Please vote for Councilman Cohen's legislation to reform the City Wage Tax. It would only be fair. Thank you. (Applause.)
Thank you very much. Any questions for this witness? (No response.)
Our next witness is Phil Lord, Executive Director of Tenant's Action Group. He's not here.
Is there anyone else here who would like to testify?
Ellen Berkowitz. My name is Ellen Berkowitz. I work for 90 Whole - 5/19/04 - Bill 040397 Councilman David Cohen. The Councilman has asked me to read into the record three letters of support that we received today. I'd also like to note that we came prepared with charts that -- with maps that City Planning put together because we wanted to show all of the Council people that the benefits of this bill would affect every single sector of the City, that there is essentially not a single Zip Code in the City where some of your constituents would not benefit. Since most Council people are not here, they will be available in our office, and we would be happy to go over the maps and explain what they mean. I have three letters here. I have a letter from State Representative Rosita Youngblood.
Just a moment. The Chair notes that many people are... there are meetings with regard to the taxes, and many -- and some other 91 Whole - 5/19/04 - Bill 040397 Council persons are in their office. So because... Looking at this on closed circuit. So because they are not here, does not mean that they are about the business of doing their duty and meeting their obligations or that they're not concerned about this issue. Thank you. Please continue.
No, Madam Chairman. I was not suggesting that. But the maps are available here, and it's probably hard to see on the television. Thank you. This is a letter from State Representative John Taylor from the 177th Legislative District. City Bill 040397 provides a wage tax reduction for certain low income residents and non-residents who are entitled to tax forgiveness under the state personal income tax forgiveness provisions. 4127 percent. Based on data made available by the Pennsylvania Department of Revenue for tax year 2001, 160,873 returns filed by Philadelphia residents were eligible for state tax forgiveness, out of a total number of 497,608 returns filed by Philadelphia residents. The state data for 2001 would indicate that about 32 percent of all tax returns filed and about 10 percent of the taxable income of Philadelphia residents would then be eligible for the lower tax rates proposed by the bill. These estimates do not include any impact on non-resident wage earners in Philadelphia. A targeted tax reduction of this type would help relieve a burden on low income families by freeing earned income to spend on necessities and for savings. 93 Whole - 5/19/04 - Bill 040397 A study prepared by Stephen Herzenberg and Mark Price of the Keystone Research Center estimates that 80 percent of the taxes saved by low income Philadelphians would be spent locally. Local spending will boost economic activity in the City, leading eventually to more jobs. I support this tax reduction proposal and hope that City Council and the Mayor will adopt it. Sincerely, John J. Taylor, State Representative, 177th Legislative District. I also have a letter from State Represent Rosita C. Youngblood. To the Honorable David Cohen, Councilman of Philadelphia, Room 588, City Hall, Philadelphia 19107. Dear Councilman Cohen, let me start by apologizing that I could not testify personally in front of you. I hope that this letter carries the same weight, as this is an important bill 25 that would bring much needed relief to the 94 Whole - 5/19/04 - Bill 040397 constituents of my District and the citizens of Philadelphia. Bill Number 040397 is a bill that supports the need to promote a healthier economy, through a systemized reduction in wage tax for the poor but hard working people of the City of Philadelphia. This bill encourages the hard working people of our City to stay in Philadelphia and keep working there. Bill Number 040397 will help to encourage more individuals to work in the City because a reduced wage tax will allow them to keep more of their income. The increased wealth accumulated by individuals will be deposited back into the economy and help revive the financial stability of Philadelphia. Bill 040397 mirrors my own bill that I introduced in the House this session, HB-2431. HB-2431 is a measure designed to expand special property tax provisions to certain populations in the First Class City in the Commonwealth, Philadelphia. 95 Whole - 5/19/04 - Bill 040397 This legislation would amend Act 91 of 1996. Act 91 provides special tax provisions allowing for the refund or forgiveness of real property tax liability for certain low income seniors. HB-2431 would expand the program to include low income persons, the disabled, the infirm and senior citizens. The Bill also changes the language of Act 91 from authorizing cities of the First Class, Philadelphia, to provide these special tax provisions, to requiring the City of Philadelphia to provide these special tax provisions. 2431 was referred to the House Finance Committee for review on March 16, 2004. Whereas Bill Number 040397 reduces the wage tax to lower income individuals and thus raises their personal wealth, 2431 complements the economy in a slightly different way. 2431 will allow more people the opportunity to purchase homes and will help 96 Whole - 5/19/04 - Bill 040397 those already in houses to stay there. This internally will reduce the number of abandoned properties in Philadelphia.
When people own their homes, they will take more pride in their block and their neighborhood, and in turn their City. A combination of Bill Number 040397 and 2431 would give much needed relief to the lower income citizens of Philadelphia. By combining wage tax reduction with the property tax reduction, our constituents would not only be able to work in Philadelphia, but buy and maintain a home here as well. Thank you for allowing me to enter my testimony into the record. If you need further testimony on 2431, please do not hesitate to contact me. Working together, City Council and the House of Representatives can advance the economy of the City of Philadelphia and the Commonwealth of Pennsylvania. Sincerely, Rosita C. Youngblood, 97 Whole - 5/19/04 - Bill 040397 State Representative, 198th Legislative District. The third letter is a statement from Elizabeth C. C. Members of the Council of the City of Philadelphia, I appreciate the opportunity to offer my comments on Bill 11 Number 040397. C. The Center is a non-partisan, nonprofit research institute that analyzes a wide variety of Federal, state and local budget and tax policy matters, with a particular focus on how they affect families and individuals with low incomes. One area of focus for the Center is low income tax relief. It is well known that many families in Pennsylvania and across the country struggle to make ends meet, despite the fact that one or more 98 Whole - 5/19/04 - Bill 040397 family members are working. In Pennsylvania more than two-thirds of poor families, that is, families with incomes below the Federal poverty line which equals $18,811 for a family of four in 2003, include parents who worked a combined total of or more weeks each 9 year. 10 While similar figures are not 11 available for the City of Philadelphia, 12 there is no reason to think that the 13 pattern would be different here. Taxing the incomes of working poor families runs counter to the efforts by policy makers across the political spectrum to provide more assistance to these families seeking to work their way out of the poverty. Eliminating all or most state income taxes on working families, as many states have done, with poverty level incomes gives a boost in take-home pay that helps offset higher child care and transportation costs that families incur as they strive to 99 Whole - 5/19/04 - Bill 040397 become economically self-sufficient. At the state level, Pennsylvania addresses this problem through the state's low income tax forgiveness provisions. Our annual analysis of state income tax burdens on low income families finds that among states with an income tax, Pennsylvania has the second highest income tax threshold for families of four with two children of states with an income tax. The income tax threshold is the point at which, as a family's income rises, it first begins to owe taxes. The higher a state's threshold, the more poor and near poor families are exempted from taxes. Local governments that levy income based taxes have also begun to recognize the importance of low income tax relief that extends beyond state taxes. For example, Montgomery County, Maryland offers a local earned income tax credit, a refundable tax credit for low income families. As you know, Philadelphia's wage tax 100 Whole - 5/19/04 - Bill 040397 does not include similar provisions. As a result, poor families pay the same rate of tax on wages as well off families. The bill before you would address this problem by reducing the wage tax for low income workers in the City, and eliminating it for the lowest income families. This type of low income tax relief would benefit the City's low income working families and the City's economy. Reducing the City's wage tax is a topic of much discussion in the City. Making the wage tax more like the state's income tax, by including a tax forgiveness provision would serve to reduce the wage tax in a more targeted way than across-the-board wage tax cuts.
Reducing the tax burden of low income working families helps families work their way out of poverty and up the economic ladder. Low income tax relief complements welfare reform initiatives by increasing 101 Whole - 5/19/04 - Bill 040397 family's take-home pay and freeing money for work related expenses such as child care and transportation. A wage tax reduction for low income families would be more targeted on City residents than an across-the-board reduction of the wage tax. This is because low income families make up a higher proportion of resident wage taxpayers than of suburban wage taxpayers. Low income families also spend more of their after tax earnings than higher income families, so their added income from the tax cut would boost the local economy to a greater extent than if a wealthier family received the tax break. The City of Philadelphia low income credit would serve to offset some of the regressivity of the City and state tax structure. Most state and local tax systems are regressive, placing a higher burden on low and moderate income families than on higher 102 Whole - 5/19/04 - Bill 040397 income families. Pennsylvania is no 3 exception. 8 percent. 11 Tax reform at the City or state level can serve to increase or lessen this disparity. It is important to note that the wage tax, while not a progressive tax, is less regressive than other taxes levied on individuals in the City, and than the taxes levied by other cities, such as local sales taxes. An across-the-board cut in the wage tax, without targeted relief for the poor, could shift the City's tax burden to other taxes that are even more heavily paid for by the poor. Of course, the cost any tax reduction proposal must be considered 103 Whole - 5/19/04 - Bill 040397 because of the effect of reduced taxes on the City's ability to provide services to its residents. The targeted wage tax cut for low income families would provide significant tax relief to the families who most need it at a lower cost than an across-the-board reduction. In addition, the bill phases in the tax reduction over a number of years which allows the Mayor and Council time to consider ways to replace the revenue lost. E. resident and Back Home Cafe Server. Thank you for the opportunity to testify before this Commission regarding the provisions in Bill 030422, which would offer low-wage workers an opportunity for reimbursement of their wage taxes. E. supports this bill, which is similar to existing measures at the state 104 Whole - 5/19/04 - Bill 040397 and federal levels that recognize that taxes can impose a very heavy burden on a person earning a very low wage. We know that one in three Philadelphia households lives at or below the poverty line. This is not enough even to meet the basic needs of food, clothing, and shelter. 5 percent wage tax presents yet another obstacle for low-income parents trying to provide for their children, or to low-income individuals trying to create a better life. Councilman Cohen's bill would reduce the tax for workers earning $6,500 per year ($15,000 for a parent and child) over the course of six years, beginning in 2006. Even the Administration's own figures set the total cost of this proposal at only one-half of a percent of the City's five-year budget. Not only that, but because the money comes out in stages, the City can make budget adjustments so cuts can occur without loss of services. Arguments can be made that this bill 105 Whole - 5/19/04 - Bill 040397 is economically sound, in that beneficiaries would re-spend these dollars and offer a boost to local business. We believe that this bill merits consideration not only because the fiscal cost is small, but because the human return on investment is large. This bill relieves low-income people and families of just one of the many obstacles they face every day.
While we support the recommendations of the Tax Reform Commission, we believe that Council has a real opportunity to shape City tax policy in positive ways for years to come; addressing this issue as part of the tax package would make a positive result for all Philadelphians more likely. I would like to introduce you to Judy Ortiz who will talk to us about the ways this bill will benefit her. This is Ms. Ortiz's testimony: Thank you for giving us the opportunity to testify at this hearing. E. Currently I work in their Back Home Cafe as a server and live with my family in subsidized housing. It's not easy to talk publicly about what are personal matters, finances, but I'm here to try to help all of the people who will be affected by this bill. I live with four dependent children and earn only a small amount from my part-time job and rest from Social Security Disability Income, SSDI. As you can imagine, this doesn't go very far with four teenager daughters. I am aware of my complete budget and stretch every nickel as far as it will go. But someone or something always has to wait. Under councilman Cohen's bill, I would save just over $200 per year. While this isn't going to change my family's overall financial picture, it is rent for one month, the gas and phone bill, or maybe the electric bill in the summer. If I find the right sales, it might even cover our grocery bill. It might just mean that some 107 Whole - 5/19/04 - Bill 040397 month, for once, no on has to wait. There is also a letter from John Meyerson, Political/Legislative Director of United Food & Commercial Workers AFL-CIO, CLC, Local 1776. Dear Councilman Cohen: On behalf of Wendell W. W. Local 1776 who live in the City of Philadelphia, I strongly urge you to support this ordinance. We support this legislation for the following reasons: It is the right thing to do. If any segment of our population deserves a tax cut, it is our citizens who are financially struggling to support themselves and their families while holding down at least one job. W. Local 1776 working part-time in the retail industry while waiting for a full-time job that would carry them out of the low-wage category. Studies have shown that money in the 108 Whole - 5/19/04 - Bill 040397 hands of the working poor is spent locally and turned over in the community several times, increasing the economic well being of merchants and providers of services throughout the City. This increased spending would provide a boon for businesses that could be as significant as some of the business tax cuts that are also being contemplated. Please keep our concerns in mind as you debate this issue and support Bill 13 Number 040397. W. Local 1776, John Meyerson, Political/Legislative Director. Thank you.
Thank you very much. Is there anyone else to testify? (No response.)
We thank everyone for their participation, and hereby announce that this hearing will be recessed until Monday, May 24th at 10 a.m. (Hearing concluded at 3:30 p.m.) 109 CERTIFICATE I HEREBY CERTIFY that the proceedings and evidence are contained fully and accurately in the stenographic notes taken by me upon the public hearing of The Philadelphia City Council, taken on May 19, 2004, and that this is a true and correct transcript of same. _____________________________ DAVID A. DEIK, RPR and Commissioner of Deeds (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)