Good afternoon, Stan. How does it feel being back?
It feels wonderful. I'm used to sitting over there, so I'll have to reorient myself, but I'll do the best I can. I have copies of testimony.
Good afternoon. My name is Stan Shapiro and I'm here to testify on behalf of Neighborhood Networks. Neighborhood Networks opposed that part of Bill 080161 which repeals the low-wage tax credit championed by the late Councilman David Cohen. Furthermore, if retaining the credit 148 2/27/08 - WHOLE - BILL 080022, etc. would create a gap in revenues causing service cuts, which we severely doubt, then we would make up for that lost revenue by paring down or eliminating the pending proposals for cutting the business privilege tax. Repeal of the Cohen tax credit makes no sense, and the Administration has barely attempted to justify it. Indeed, the Five-Year Plan includes absolutely no estimate of any cost whatsoever that would actually be incurred from the credit within that five-year period. Only after questioning by Council yesterday did the Administration for the first time offer an estimate of what the credit might cost during the Plan's duration. The number it offered, $16 million in Fiscal Year 2013, is almost nominal in a span of time that contemplates $20 billion in spending. Other justifications tossed with no elaboration into the mix also 149 2/27/08 - WHOLE - BILL 080022, etc. hold no water. First is the idea that the Federal Earned Income Tax Credit has had, quote, "recent expansions," unquote. No details were given. Who now gets the credit that would have previously been excluded? How much has the credit grown? What barriers to obtaining the credit have been removed? We are not told, and apparently for good reason. You will hear testimony today that in fact no such expansion has taken place other than minor cost-of-living adjustments. The only other attempt at a justification boasts of the, quote, "significant tax reductions in several other areas," unquote, that together with the alleged Earned Income Tax Credit expansions will, quote, "substantially benefit low-income residents and employees of Philadelphia firms," unquote. This rationale is a pretty strong endorsement of trickle-down economics. Rather than put dollars 150 2/27/08 - WHOLE - BILL 080022, etc. directly into the pocket of the low-wage workers who need them, the Administration is suggesting that the workers would be better off funneling those dollars through employers. Of course, those employers may have any number of other uses for those funds, including increasing their own compensation, increasing dividend payments or expanding investments outside the City of Philadelphia. One may argue that business tax cuts improve the business climate, but in terms of putting dollars directly into the pockets of low-wage workers, no tax measure can do it better than a direct credit against what workers pay. Neighborhood Networks' position is very simple on this proposal. It is unconscionable, immoral and should simply be rejected. If restoring the Cohen tax credit is credibly shown to cost the City dollars and, therefore, to threaten either City services or worker wages and 151 2/27/08 - WHOLE - BILL 080022, etc. benefits, then the Administration's proposed business tax cuts should be peeled back. Cuts in the BPT will cost the City revenue and have no proven record of creating jobs. And I want to just pause here for a minute to mention the chart that's attached at the back of my testimony. This was created by the Keystone Research Center and compares unemployment rates between Philadelphia, Pennsylvania and the United States in a period of time running from 1970 to 2007, and you'll see how nicely they track each other, although the Philadelphia rate is from time to time more or less differentiated from those other two rates. The largest gap is in the mid '70s right after Mayor Rizzo raised taxes. So that's kind of interesting, that that's where the largest gap in unemployment rates between the City, state and federal government appears. But right after that, while 152 2/27/08 - WHOLE - BILL 080022, etc.
those tax rates -- the Rizzo tax rates are still in place, those gaps disappear. They virtually disappear. I mean, the trend lines are the same all the time, but the gaps get larger and sometimes when there are high Philadelphia taxes, other times the gaps virtually disappear, and they disappeared from 1982 to about 1990 or '91.
Excuse me, Stan. Point of information. I don't have the testimony and can't refer to what he is talking about, and I don't think Councilwoman Tasco does either.
I thought it was just distributed. It's four pages. I have a few more. The last pages should be a chart. (Pause.)
All right. Mr. Shapiro is referring to the 153 2/27/08 - WHOLE - BILL 080022, etc. chart that's in the back of his testimony.
So you'll see basically, again, there are big gaps in the unemployment rate between Philadelphia, the State of Pennsylvania and the United States in the mid to late '70s when City taxes were increased sharply. Those taxes were still in place all the way through the early '90s. The gap disappeared, virtually disappeared, while those high tax rates were still in place. And then when tax cutting began in the early '90s, the gap reemerged, not quite as big as in the '70s, but that gap between Philadelphia rates and the other rates reappeared then. But, in general, the unemployment rates between the City, state and federal government were pretty much in tandem regardless of local taxes. So there are many reasons to 154 2/27/08 - WHOLE - BILL 080022, etc. think that the level of City taxes is not really a great determinant of employment or unemployment in the City of Philadelphia. Now, I'm not saying this chart is conclusive, but, again, we're saying that if the choice is between putting a tax credit directly in the pockets of Philadelphia workers or cutting business taxes, then the choice should be clear, the tax credit should absolutely be preserved. That puts dollars directly into the hands of people who can spend those dollars in City businesses, paying their gas bills, their water bills, their real estate taxes, their mortgages. It's indisputable that people with those funds will spend them where they need to be spent. So I've skipped a little bit of my testimony and I'm going to pick up at the end of . I do want to mention one way in which the predicted effects of business privilege tax cuts do comport with recent 155 2/27/08 - WHOLE - BILL 080022, etc. studies which support those cuts, in particular the report of the Tax Reform Commission. That Commission, which strongly supported BPT cuts, as you will recall, predicted that there was one way in which total City revenues would rise even as business privilege tax revenue fell, and that would be if real estate assessments were allowed to increase sharply, thus enabling sharply higher real estate tax collections. " Because the Commission said that if you cut business taxes, property values will go up. "It remains to be seen whether the City can resist the political pressure to slow the growth of assessments or lower the effective 156 2/27/08 - WHOLE - BILL 080022, etc. property tax rate as property values rise. " So according to the Tax Reform Commission, the only way this Council can preserve services while cutting business taxes is to allow real estate taxes to increase simultaneously. That's why you'll see in the Five-Year Plan that current real estate tax collections are anticipated to rise a cumulative 19 percent from Fiscal Year '08 to Fiscal 20 Year '13. If that's truly caused by the 21 BPT tax cut or will be compensating for 22 that cut, then what the Administration is 23 proposing is a tax shift, not a tax cut. A major part of that shifting tax burden will be felt by already 157 2/27/08 - WHOLE - BILL 080022, etc. stressed homeowners and tenants in a town in which median household income is a mere $33,000 per year, in which 5 percent of the population is poor and in 6 which many more are struggling. 7 The Five-Year Plan suggests 8 that the Administration intends to work 9 for protections for those hit hardest by 10 revaluation, but it says nothing about 11 the impact of normal reassessments, which 12 is what's in the Plan, and it provides no 13 detail regarding its intentions at all to 14 protect homeowners who need protection. 15 All in all, based upon its own 16 numbers, it's clear that the 17 Administration intends to shift the 18 impact of taxation from business to 19 homeowners and to low-wage workers. 20 Neighborhood Networks opposes that 21 approach and hopes that this Council will 22 as well. 23
Thank 24 you, Mr. Shapiro. 25 The Chair recognizes Councilman 158 2/27/08 - WHOLE - BILL 080022, etc. Jones.
How much do you think the Cohen tax bill, which we affectionately call it, has mattered to the working poor, and how much has it benefited them over the years that it's been in existence?
Well, actually, it was passed in 2004, but even then, its effective date was postponed until about 2010, and then in '06, it was put off again until 2013. So it's actually never been in effect. Nobody has yet saved a penny. It's been dragged out and delayed while all these other tax cuts were going through. It's sort of been the unfed uncle on the third floor that's there, but nobody pays attention. And now the 159 2/27/08 - WHOLE - BILL 080022, etc. Administration again, well before it would even go into effect, it's not scheduled to yet put a dime in anyone's pockets until 2013. If anything, it should be accelerated rather than eradicated. But, unfortunately, it's not yet put a dime in anybody's pocket.
How many Philadelphians do you think this particular tax cut benefits?
I don't have an exact estimate. I think the Administration should, calling for its eradication, they ought to come forward with a number, but I think it's probably percent, 30 percent. 18
And the 19 stereotype of this bill has been that it 20 is for those people on welfare, and, in 21 fact, in order to get a rebate on a wage 22 tax, you have had to work -- 23
-- in order 25 to have it. 160 2/27/08 - WHOLE - BILL 080022, etc.
And the bald-headed stepchild that it is, of all the e-mails I've gotten about tax reform, I haven't gotten from those same people that are tax reform advocates about this tax being repealed, which is kind of ironic because if we are against taxes, we're against taxes across the board, except for poor people.
The state, the federal government, they both have provisions for the working poor. It's kind of odd that in a city which is a democratic city we don't have it.
Thank you. The Chair recognizes Councilman Goode.
Thank you, Madam President. Good afternoon, Mr. Shapiro. 161 2/27/08 - WHOLE - BILL 080022, etc.
I was distracted in my line of questioning by the chart you presented, because every time this chart is presented in City Council, I will take the opportunity to do what I'm about to do. Looking at your chart of unemployment rates from 1970 to 2007, what period was there the greatest drop in unemployment?
What period was the greatest drop? That would seem to be during the Goode Administration.
I understand. And during that Administration, there were no cuts in taxes, significant cuts in taxes.
Actually, that started -- but it started during the 162 2/27/08 - WHOLE - BILL 080022, etc. Green Administration, as a matter of fact.
That started during the Green Administration and continued through the two Goode Administrations. And then the Rendell Administration started, the tax cuts started, and that gap grew.
I'm getting back to my line of questioning, which is only two questions. The first is, the chart also shows and all the charts will show that in terms of unemployment rate, Philadelphia has persistently been two points above both the region and the nation.
And so Philadelphia has been not competitive economically for decades.
Correct. But what I think this chart shows -- I'm sorry. 163 2/27/08 - WHOLE - BILL 080022, etc.
It is pretty much two points across the board. You noted that there was one period of time at which that gap was even wider than two points.
Well, I'm not an economist. I can't tell you why, but it apparently was between about 1975 and around 1982.
Did you not in your testimony attribute it to local taxation?
No, I didn't attribute it to local taxation. I said it took place at the same time that local 164 2/27/08 - WHOLE - BILL 080022, etc. taxes went up. But then when local taxes stayed that high during that period, during those two Administrations, the Green and the Goode Administrations, when taxes stayed at those levels, that gap virtually disappeared, certainly between the City and --
One, is it your testimony that there is or is not a correlation between the unemployment rate and local taxation?
My testimony is that as far as this chart shows, there is no correlation, no. I don't see how that is disputable. I think that --
That actually contradicts your testimony, but we'll check the transcript on that.
Well, then let me be very clear, if I wasn't before, that 165 2/27/08 - WHOLE - BILL 080022, etc. since --
You in fact raised the issue of local taxation regarding the chart.
Right, but I was trying to say that to the extent the chart seems to suggest that taxes were a factor in one portion of time, other parts of that chart refute it.
Were there any local taxation changes right before that drop, around the time of that drop in the unemployment rate?
Well, the business privilege tax actually came into effect in 1982 or 1983, so --
It was raised in the '70s. 166 2/27/08 - WHOLE - BILL 080022, etc.
Oh, again in the '80s. All right. Then I stand corrected, then. Taxes went up at that time. And the gap between the Philadelphia, Pennsylvania and United States unemployment rates narrowed. So that would suggest --
My only question really was two points. One, that Philadelphia has persistently been two points above the region and the nation in terms of unemployment rate over decades, which means that we are uncompetitive regionally and nationally for some reason. And the second point was whether there is a correlation between local taxation and the unemployment rate. And I thought you made that point. Whether it was a specific point or not, I thought you made that point in your testimony. If you didn't, you didn't. 167 2/27/08 - WHOLE - BILL 080022, etc.
I absolutely did not. This chart does not show that. It shows that there is no relationship. It's haphazard. And, furthermore, the differential narrowed substantially, it seems to me -- and I've got raw data, and I'll actually send it around, because I just got this today. But it narrowed -- the differential narrowed during a time when, as you say, wage taxes went up. Other taxes were stable between the beginning of the Green Administration and the end of the Goode Administration. The unemployment gap between the City of Philadelphia and the Commonwealth practically disappeared, if you look at this chart.
I don't disagree with that, but that also occurred after an increase in the wage tax, which is interesting.
Yes. So that higher taxes do not necessarily create a big boost in unemployment in Philadelphia 168 2/27/08 - WHOLE - BILL 080022, etc. compared to Pennsylvania and the United States.
I think the point that actually should be made is that a lot of this is driven by the national economy, and all these different periods, in the '70s, '80s and '90s and even now, most of it is driven by the national economy, and the period where you saw the greatest drop in unemployment actually is because of the national economy, but at the same time, the fact that we have persistently been two points above the region and the nation in terms of unemployment rate is because of local economic decisions.
Well, but the question is what are those economic decisions to cure that fact, and I would say that putting money in the hands of people who will spend them on local goods and services would be the best way.
We agree on that. 169 2/27/08 - WHOLE - BILL 080022, etc. Thank you.
Thank you. The Chair recognizes Councilman Green.
Thank you, Madam President. Good afternoon, Stan. I just want to point out a few things. With respect to the Cohen tax credit, I think we ought to try to find a way to save it. I want to start by saying that. However, I want to challenge a few of the assumptions in your testimony, just because I don't want the record to reflect what may be, I guess, some economic theory I might disagree with. The first is, I think the chart, as Councilman Goode points out, reflects an extremely strong correlation between the national economy, the state economy and the local economy.
And doesn't really reflect much else. Certainly I haven't seen any sort of study or economic data that indicates a correlation between differences in our employment rate and our business privilege tax or wage tax, et cetera. I guess another assumption that you had in here is that trickle-down economics don't work. I don't know if it's in your testimony because I didn't have your testimony.
Trickle-down economics actually work -- and there's tons of academic study on this -- work very well at the local level. In other words, if local people, as you suggested, if the low-income people here in the City of Philadelphia have extra money to spend, they will spend it in the City of Philadelphia, which generates all sorts of multiplier effects in terms of the 171 2/27/08 - WHOLE - BILL 080022, etc. additional tax revenue that the City of Philadelphia will take in and the economic viability of the City itself. So tax cuts at the local level actually have a much more dramatic impact on growth at the local level than a national trickle-down theory, because at the national level, you can't control where businesses or people are going to go. At the local level, when we cut taxes, the money stays here, for the most part. It is spent here. So I would argue that a business privilege tax cut or elimination of the gross receipts portion will cause private businesses to either pay themselves more, in which case they'd pay wage tax, or it would cause businesses to invest here, give them a reason not to leave here. And if they spend additional money, generally it's more likely to be spent here than anywhere else. So in terms of what we can do to create jobs for the 25 percent of this 172 2/27/08 - WHOLE - BILL 080022, etc. City that's in poverty and the 36 percent of children who will need jobs in the next years, I think lowering business 5 taxes are very important to create jobs 6 for our neediest citizens. 7 So other than that, I agree 8 with your principle that we should try to 9 keep the Cohen tax credit. Thank you. I 10 don't know if you want to comment on 11 that. 12
Yeah, I would 13 like to. I think trickle-down is 14 normally associated with business tax 15 cuts or tax cuts for the wealthy, but not 16 associated with such things as putting 17 money directly into the hands of poor 18 folks or working-class folks through 19 things like the Cohen tax credit. 20 So I'm glad that you're supporting the Cohen tax credit, but just as a theoretical matter, that's not normally thought of as trickle-down, because that goes directly into your pockets. 173 2/27/08 - WHOLE - BILL 080022, etc.
I don't think business tax cuts necessarily -- I mean, there is an economic theory which says --
More money in the hands of businesses get spent by businesses or they go to the owners in the form of profits and they pay wage tax on it.
Well, they may not live anywhere -- owners of Sunoco, Wal-Mart, Comcast and other big corporations may or may not invest that money directly in the City of Philadelphia. They may pay dividends to people who live Arizona.
Sure, and the argument, what it's supposed to do is create more economic activity in the City of Philadelphia by having a more business-friendly environment.
Well, that's the notion. If it actually cuts -- 174 2/27/08 - WHOLE - BILL 080022, etc.
And the Tax Reform Commission basically says in their study that it will take about eight years. We'll have a dip in revenue as a result of this, but then we're going to start to -- as people understand that Philadelphia is a more business-friendly environment, that will grow out of that and continue to grow. So I don't necessarily agree with your premise, but where you are is okay with me.
I guess I have one closing comment, that it also says that you need real estate taxes to go up during that interim period of time, and that's what we're seeing. We're seeing a percent increase in the real estate 20 taxes on a base which is extraordinarily 21 unequal, and there are no real proposals, 22 concrete proposals, to protect those 23 people who need protection badly. So you may have foreclosures, you may have more people not able to pay their water bills 175 2/27/08 - WHOLE - BILL 080022, etc. and a whole range of things during that period of time when we have that gap.
You've raised a good point, which I meant to comment on, and, that is, what percentage of the percent in poverty do you think 8 are homeowners? 9
Again, I don't 10 have that statistic off the top of my 11 head, but tenants will -- 12
But what 13 group of people in terms of economic 14 class, economic status, what group of 15 people are the most overtaxed people in 16 terms of real estate in the City? 17
Real estate 20 property taxes in the poorest 21 neighborhoods of the City -- 22
-- are 24 higher than even the property values in 25 many cases. 176 2/27/08 - WHOLE - BILL 080022, etc.
So they're not going to -- the implication of what you're saying is that they're going to bear the burden of increased property taxes. That's not where the money would be coming from. It would be coming from the other unassessed areas of the City, underassessed areas of the City that are wealthier, where homes are worth a lot more than the people that would get the Cohen tax cut.
If it's done equitably, and we really don't know at this point that it will be, and certainly there are many gentrifying areas where long-term homeowners who are not by any means wealthy may well be hit by reassessments that they can't possibly afford, and I would think that before the City relies on that kind of revenue, it should have in place protections for those people.
Well, I 177 2/27/08 - WHOLE - BILL 080022, etc. believe we've passed homestead exemptions and other things. The state has to act on certain things for us to do that, but it's irresponsible of us not to do assessments when property values go higher. That's what the City has to do.
You're welcome. The Chair recognizes Councilwoman Blackwell.
Let me ask you who Neighborhood Networks is in terms of what its agenda is. Were you all formed to deal with taxes as an issue? I assume it wasn't to deal with the Cohen bill. 178 2/27/08 - WHOLE - BILL 080022, etc.
No. We're an organization that is interested in furthering progressive policies generally, and this is one issue that we're concerned about, but it's, by no 7 means, everything.
I didn't hear you. Furthering what? I didn't hear you.
Progressive policies in a range of areas. We have a website and a platform that's on the website. It's fairly long. You can go to Phillynn.org and see the platform there.
No. 18 We don't necessarily, a lot of us, disagree with many of the things you said here. All of us are certainly concerned about wage tax and how that affects the citizens of our City, and we would not like to see it oppose business privilege tax, but I wanted to know a little bit, because during our reelection campaign, 179 2/27/08 - WHOLE - BILL 080022, etc. we had a discussion about Councilman Cohen, the late Councilman Cohen, and his agenda with regard to the organization, and at that time, you said it didn't matter, and we wanted to be clear whether it was a David Cohen issue or not. Thank you, Madam President.
You're welcome. The Chair recognizes Councilman Goode.
Thank you, Madam President. One more quick question. If we fast forward to 2015 and this bill is actually enacted into law and the gross receipts portion of the business privilege tax has been eliminated and there is a 5.7 percent net income tax, do you consider that to be a low business tax rate?
No, I don't consider it to be a low business tax, but I think it's necessitated by the fact that we -- the underlying biggest problem that we have --
-- is that we're a stepchild of the state, and the state doesn't fund the City the way it needs to be funded, so we have all taxes that are too high.
What I was asking. If we fast forward to the year 2015 and this bill is enacted into law and we have eliminated the gross receipts 181 2/27/08 - WHOLE - BILL 080022, etc. portion of the business privilege tax and we at that point under this law have a 5.7 percent net income tax rate, is that a low business tax rate, in your mind?
In general, it's not low. For some corporations it's low because they're exempt from it. Regulated industries will be exempt from it.
For the tax rate that we have and will have under this law, is that a low business tax rate in general?
Any other questions or comments from members of the Committee? (No response.)
Our next witness will be? 182 2/27/08 - WHOLE - BILL 080022, etc. MR. McPHERSON: Brett Mandel, Philadelphia Forward. (Witness approached witness table.)
Good afternoon. Welcome. Do you have copies of your testimony that you'd like distributed, Mr. Mandel?
Good afternoon. Please identify yourself for the record and proceed with your testimony.
Good afternoon. I am Brett Mandel, the Executive Director of Philadelphia Forward. Madam President and members of City Council, thank you for providing this forum to discuss tax policy and specific tax reform legislation in Philadelphia. It is wonderful to see City leaders focusing on tax reform once again, because it is clear that the problems with taxation in Philadelphia 183 2/27/08 - WHOLE - BILL 080022, etc. have not gone away on their own. The latest data from the Bureau of Labor Statistics showed once again that even though the nation and each of the City's surrounding counties enjoyed modest job growth, Philadelphia itself continued to lose jobs. Those taxpayers who remain are frustrated by unfair taxes that treat similar taxpayers differently and defy any sense of rationality. The voter-empowered Tax Reform Commission established that Philadelphia taxes are too high, that Philadelphia taxes what other jurisdictions do not tax, and that Philadelphia taxes are unfair. As a result, Philadelphia's high tax burden continues to place the City at a competitive disadvantage in terms of attracting and retaining jobs and residents, while at the same time significant equity issues for some taxpayers to pay too much while others do not pay their fair share. To fix what is wrong with 184 2/27/08 - WHOLE - BILL 080022, etc. taxation in Philadelphia, the Tax Reform Commission recommended that we dramatically reduce the wage tax, phase out the job-killing business privilege tax and make real estate taxation fair and understandable. Legislation to cut the wage tax down to size combined with additional state assistance will soon make that hated levy more a molehill than a mountain. Proposed changes to the job-killing business privilege tax would go a long way toward improving the City's ability to encourage entrepreneurship and foster job creation. Elimination of the gross receipts portion of the tax, which forces businesses to pay a tax even if they do not earn a profit, will dramatically improve Philadelphia's ability to nurture fledgling business. 5 percent net income portion that chases so many firms out of 185 2/27/08 - WHOLE - BILL 080022, etc. the City will improve the City's ability to retain growing firms. As the City's fiscal state improves, the modest cuts should be examined and deepened to have a more profound effect. While the business privilege tax continues to exist, we should take some additional steps to implement reforms to make the tax make more sense. We should establish two payment dates for the business privilege tax so taxpayers no looker have to assemble the cash to make their tax payment on one date. We should adopt single-sales factor apportionment to base net income portion of the tax solely on Philadelphia sales to remove the disincentive for firms with few Philadelphia sales to remain in the City. We should eliminate the disparity between the tax paid by corporations and unincorporated entities that forces partnerships to pay a higher tax burden than their corporate competitors. And we should lengthen the net operating loss 186 2/27/08 - WHOLE - BILL 080022, etc. carry-forward period so that start-up firms are no longer discouraged from locating in Philadelphia. If we are to reduce taxes, or do anything else, reduce crime, improve schools, improve neighborhoods, that will help us attract and retain firms and family, we will increase real estate values. If we are going to place more emphasis on our tax structure on the value of real estate, then it is crucial to tax real estate properly and fairly. With regard to real estate taxation, Philadelphia's problem is not competitiveness, but fairness. Today, homes that could sell for the same amount are taxed differently, and owners of modest homes are often paying more in taxes than more valuable properties. By now, we should all understand that in Philadelphia property valuation for real estate tax purposes is unfair, uncertain, confusing and illegal.
But it's also clear that making positive change in this 187 2/27/08 - WHOLE - BILL 080022, etc. area requires some political courage, as undoubtedly corrective action will not be universally popular given that ultimately some, including myself, would have to pay more in a fair system. Legally and logically, the Board of Revision of Taxes must take the first step and properly and accurately value City properties for tax purposes, but this Council can commit to a series of policies to make a smooth transition from an unfair system to a fair one, which would make the BRT's job a little easier. This Council should back tax rate decreases to ensure that reassessments are revenue neutral for the City and provide a reasonable basis for the changes. You should adopt a real estate tax relief buffering program to make sure that assessed values are buffered in to eliminate the most dramatic one-year changes and a deferment system so that vulnerable homeowners can live in their homes today and pay their 188 2/27/08 - WHOLE - BILL 080022, etc. tax burden in the future when they sell their homes. We should also work to enact many complementary recommendations designed to improve the overall workings and fairness of the real estate tax system. Phase in land-value taxation to decrease tax rates on structures and increase tax rates on land so the City provides an incentive for economic development and a discourage to blight creation. Separate the property assessment and appeals process so that the assessing agency does not judge its own work. Establish a taxpayers' advocate to represent taxpayers in matters regarding real estate assessments and appeals. Implement quarterly payments so that taxpayers who do not pay taxes through their mortgage companies do not have to assemble the cash to make tax payments all on one date. Implement the system of budget-based property taxation so that this City Council sets tax rates 189 2/27/08 - WHOLE - BILL 080022, etc. after it knows the true assessed value of the City, where currently City Council sets tax rates before assessments are performed, so increases in assessments result automatically in increasing tax bills and financial windfalls for the City. If City Council enacts legislation pending today and gives careful consideration to these additional initiatives, Philadelphia will take a big step toward implementing the vision of the Tax Reform Commission and a huge leap toward becoming a city that can attract and retain employers. As this discussion continues, you can count on Philadelphia Forward to help inform our constituency for change about these issues. Of course, we'll be pleased to provide any additional input into development of specific proposals, and I pledge our organizational resources and my own personal time to help this legislative body in any way to move these 190 2/27/08 - WHOLE - BILL 080022, etc. issues forward.
Thank you very much. Are there any questions or comments? The Chair recognizes Councilman Green.
Do you have any idea how much each of your cumulative proposals in here would cost the City in terms of revenue?
Additional above and beyond what it is that the Administration has proposed?
I do not. There have been some discussions to provide an updated cost estimate specifically on single-factor apportionment. Because the rates are changing, the relationship 191 2/27/08 - WHOLE - BILL 080022, etc. between the wage tax rate and the net profits tax and the net income tax rate, that would have to be refigured as well in terms of correcting that disparity between the corporations and their non-corporate competitors. But we have had some discussions with the Administration, and we'd love to see numbers ourselves.
Philadelphia has a high comparative tax burden and provides, in my opinion, relatively poor City services to its tax-paying citizens. Would you agree with the statement that if we provided great City services, our tax rates would be less important?
Sure. Obviously it's a balance. Right now no matter which side you look at the equation, we're out of balance.
Okay. So if we were to adopt all of these measures, it would severely decrease our ability to provide City services, not just to our 192 2/27/08 - WHOLE - BILL 080022, etc. most neediest citizens, but to everybody in general, fewer -- the choice you're asking us to make is between providing better City services or improving City services and doing something that will take a long time to have an effect on the economy while City services suffer, and I just wondered if you had thought about the interplay between City services and less revenue and what you think is most important for the City and what it is our job is as a city.
Well, first of all, I guess I would disagree with the premise of the statement. Certainly Philadelphia has been cutting tax rates for more than the past decade and we've been realizing increasing tax revenues. Certainly when the Tax Reform Commission examined what would happen if we reduce our tax burdens, if we change our tax burdens, we saw that one of the good things about having such a peculiar tax mix as Philadelphia has, if you create 193 2/27/08 - WHOLE - BILL 080022, etc. jobs, if you grow jobs or stop losing as many jobs, well, we tax jobs in Philadelphia, so we'd realize revenues there. If we make Philadelphia a more attractive place to do business, a more attractive place to live, you increase the value of property. Right now Center City office space in Philadelphia sells for mid 20's a square foot. That's ridiculously low. If we had a lower business privilege tax, if we had no 13 business privilege tax, that gets capitalized into the value of commercial property. The value of commercial property rises. We tax the value of commercial property. So certainly the Tax Reform Commission's report says and the economic theory behind the Tax Reform Commission's work suggests if we make Philadelphia tax rates less burdensome, we don't actually give up revenue in the short or long run.
Actually, I think the Tax Reform Commission thought 194 2/27/08 - WHOLE - BILL 080022, etc. it would take about eight years of lower revenue into the City to -- in other words, we'd have to sacrifice revenue for eight years before we started building again if we followed all of their recommendations.
I would go back over that, because one of the things that we have been doing is, we have been cutting. So eight years ago we cut and that's having an effect today. And seven years ago we had a cut and it's going to have an effect tomorrow. If we are starting from scratch, you might expect some lag, but we're not starting from scratch in Philadelphia.
You mention the attractiveness of the City to potential businesses locating here and things like that, and it seemed like the focus of that adjective was on taxes. What effect does it have when people are coming to look at Philadelphia and they see trash-strewn streets, because instead 195 2/27/08 - WHOLE - BILL 080022, etc. of 2,400 sanitation workers, we have 1,200? That's the balance that we have to weigh here. And I think our City services are poor and I'd like to increase the level of City services to people before we -- and maybe slowly undertake change.
I couldn't agree more. Certainly any of the recommendations for tax reform are not to deprive the City budget of revenues. It's to grow the tax base so that we have more revenues. I have a child in the City public schools. I enjoy playing on City ball fields. I live on those dirty City streets. I would be the last one to say we should reduce services. We need more services. The only way to get those more services is either to increase taxes or expand the tax base by making Philadelphia more attractive to residents, more attractive to businesses. 196 2/27/08 - WHOLE - BILL 080022, etc. We expand the tax base to generate the revenues.
It's not clear to me it wouldn't be a guns and butter type budget where we're -- if we're going to increase City services, we have to have the revenue from somewhere, which would mean we'd have to borrow the money, and I'd like to see the cost and benefits of what you're proposing rather than just we should do this, and I don't know how we get that information from you.
Well, as I said, we've been having discussion with the Administration. Certainly the Administration has given you information about what it is that they're proposing that's in front of you. We'd love to see some of those numbers ourselves.
Well, okay. I mean, if you're an advocacy group and you want to advocate these positions, then I'm asking you to try to provide us 197 2/27/08 - WHOLE - BILL 080022, etc. information about what this stuff would cost.
Our next witness? MR. McPHERSON: Jonathan Stein. And his testimony has been distributed. (Witness approached witness table.)
I'm being joined by Andre Butler, Chairman of the Board of Philadelphia Unemployment Project.
Good afternoon, Madam President and members of Council. 198 2/27/08 - WHOLE - BILL 080022, etc. I'm Jonathan Stein, General Counsel at Community Legal Services and a former member appointed by City Council of the Philadelphia Tax Reform Commission. I am here presenting testimony on behalf of the Philadelphia Unemployment Project, PUP, which for over three decades has been dedicated to ensuring employment security and income security for those across our City. PUP most recently led the successful statewide campaign to raise the state's minimum wage law and was a strong supporter of what is now known as the Cohen working tax credit. The Nutter Administration's Five-Year Plan and Bill 080161 would eliminate forever this tax credit rebate, which was a crowning historic achievement of this City Council and the first concrete step in almost a century of the wage tax to bring some much-needed progressivity and fairness to the worst regressive tax the City has ever known. The rebate was delayed to begin 199 2/27/08 - WHOLE - BILL 080022, etc. only in Fiscal Year '13, the fifth year of the Five-Year Plan now before Council. The current Administration has estimated a $16 million cost in Fiscal Year '13 and apparently has estimates for outlying years, none of which has been independently scrutinized for accuracy. Our position is clear: There is simply no fiscal or policy basis to eliminate this credit before it will even begin five years from now. The Cohen rebate mirrors the state's Tax Forgiveness Program for the equally regressive flat state income tax by giving a graduated wage tax rebate to families with an income of less than about $32,000 for a family of four. These are all working-class families at, around or below about 150 percent of the poverty level. Established research groups like PathWays PA have shown that families need about 250 percent of poverty to get by these days. The already delayed implementation would go 200 2/27/08 - WHOLE - BILL 080022, etc. 005 percent rebate in Fiscal Year 2013. Our City should no longer countenance taxing the wages of people below or near the poverty level. Their lives are hard enough as it is, often on the brink of survival. They are playing by the rules by working hard to support their families, and the City wage tax, like the state and federal income tax systems, should embody basic fairness and equity as it will do now with this ordinance, the Cohen ordinance that Council adopted over mayoral veto and which it should be justly proud of. The Cohen working tax credit rebate has three major justifications. The rebate would move toward economic self-sufficiency more of the high proportion of Philadelphia families with children who currently have incomes too small to pay for a basic needs budget. Two, the tax relief targeted for these 201 2/27/08 - WHOLE - BILL 080022, etc. working families will benefit the City more than the suburbs. Tax relief targeted under this ordinance will also directly stimulate the Philadelphia economy more than other tax cuts. As the Keystone Research Center and its director, Dr. Steven Herzenberg, testified earlier before Council, the City wage tax forgiveness program in the Cohen ordinance shifts the overall burden of Philadelphia wage taxes away from people who live in the City who are more likely to be of lower income to non-resident wage taxpayers in the suburbs, more of whom can afford to pay the wage tax. Many more City residents would qualify for this tax forgiveness than suburban non-resident wage taxpayers. In analyses commissioned by this City Council in recent years, the Keystone Research Center also found that the Cohen ordinance will stimulate the Philadelphia economy more than other tax 202 2/27/08 - WHOLE - BILL 080022, etc.
cuts, as, one, more of that Cohen rebate money will be spent by beneficiaries who live in the City and, two, lower income people who also spend more of their money and spend more of it locally than do higher income people, who tend to save it away in IRAs or spend it on a vacation in Cancun; that is, spend it outside the City. Keystone Director, Steve Herzenberg, compared the general across-the-board wage tax cut, which is in the Five-Year Plan, to the Cohen targeted wage tax credit and determined that 86 cents of the dollar in Cohen tax rebate goes to Philadelphia residents versus 63 cents of the general wage tax cut. He also found that 66 cents of the Cohen targeted rebate would be spent in the City versus only cents of the one 22 dollar spent in the City across-the-board 23 wage tax reduction. Dr. Herzenberg 24 concluded that, quote, "in sum, a dollar 25 of the Cohen targeted tax relief boosts 203 2/27/08 - WHOLE - BILL 080022, etc. 6 times as much as a dollar of across-the-board tax relief," end quote. To minimize the fiscal impact on the City, the law's exemptions would be phased in over six years, reducing the tax a half a percent each year. To reduce fiscal impact further, although we're not recommending it here, the threshold for the exemption could be set lower than the state's level. The state guidelines, though, are preferable because they are fair, and consistency in exemptions would make the law more understandable and accessible. Mayor Nutter does not claim that repealing the Cohen law is needed to balance the current budget until Fiscal Year '13, the fifth year, and then only because of an assumed Fiscal Year '13 cost of $16 million. Apparently at yesterday's City Council hearing on the Plan, City officials could not document estimates 204 2/27/08 - WHOLE - BILL 080022, etc. for the years beyond the Five-Year Plan, including an assumed $80 million cost in the eighth year. The Five-Year Plan tries to justify the elimination of the Cohen rebate by reference to tax reductions in other areas and to alleged "expansions," in quote, of the Federal EITC, Earned Income Tax Credit, but cuts in the business privilege tax and even across-the-board small wage tax reductions in no way target lower income families with tax relief, and they leave the wage tax totally regressive. And there have been no expansion of EITC eligibility for over a decade since the Clinton Administration. Clearly, a policy and values choice has driven a fiscal decision. On its face, it appears hardly convincing to justify the repeal of such an important and progressive law because of a very small cost to the City five years out or even further costs thereafter. 205 2/27/08 - WHOLE - BILL 080022, etc. There are innumerable ways of addressing these costs now or later at that time. 724 percent in Fiscal Year '08 as is planned. 8 percent. Secondly, as Councilmembers yesterday pointed out, the City apparently has not planned for the receipt of gaming revenues, which are dedicated to wage tax reductions. These are estimated to be roughly $470 million over five years. Thus, non-gaming revenues planned for the across-the-board wage tax cut can be redirected to the Cohen ordinance which has a targeted wage tax rebate. Third, adjustments can be made 206 2/27/08 - WHOLE - BILL 080022, etc. in how much the business privilege tax is reduced, as well as whether the net income portion should be reduced itself. And as stated earlier, the City does not have to strictly follow the state's exemption income guidelines for tax forgiveness and could make the levels somewhat less generous. The City Five-Year Plan and estimates for outlying years for the costs of the Cohen law appear to dramatically overstate these costs by assuming all those eligible will suddenly and separately apply for a tax rebate that is brand new.
Experience with the Federal EITC has shown that in its earlier years the take-up rate was well less than a third and remains to this day well below 100 percent. The Tax Reform Commission reported that in 2002 45,000 eligible people in the City did not claim the EITC. The Nutter Five-Year Plan also does not recognize that the Cohen working 207 2/27/08 - WHOLE - BILL 080022, etc. tax rebate will stimulate the economy and, thus, bring in additional tax revenues, reducing the impact of the rebate on the City treasury. Our best estimate based on Keystone Research Center research is that a large majority of the rebate will be spent in the City, generating a conservative estimate of $2 million in additional tax revenues. The Five-Year Plan also does not recognize that the Cohen ordinance 13 will reduce City expenditures, improving the well-being of lower income families and reducing social problems that require social services from the City. For example, the rebate will help families on the verge of homelessness or foreclosure eviction stay in their houses, reducing the need for other service expenditures. Taken together, then, the net costs of the Cohen rebate are much less than projected in the Five-Year Plan's assumptions. To repeal the Cohen rebate 208 2/27/08 - WHOLE - BILL 080022, etc. places the burden of balancing the Five-Year Plan on the backs of those least able to afford it. S. If we accelerate the reduction in business taxes, the relative burden of paying for City services will fall even more heavily on those with lower incomes. The wage tax rebate is a small step towards making our tax structure more fair. Ending the Cohen rebate is self-defeating, because it undermines other efforts to stimulate economic growth, especially in our commercial corridors. And I must add to that, it's really contrary to what Mayor Nutter said in his inauguration speech about trying to transfer many tens of thousands of people out of poverty in the City over the coming years. The Cohen working tax rebate is 209 2/27/08 - WHOLE - BILL 080022, etc. an ideal complement to efforts to stimulate economic revival in our neighborhoods. Neighborhood improvements will have a much greater impact if we give the residents of these neighborhoods more purchasing power. Finally, we should keep in mind that the planned accelerated cutting of the business privilege tax rests a lot upon wishful thinking, the wishful thinking that such cuts will generate substantial economic and jobs growth and then revenue growth. If this was so, would not the Five-Year Plan anticipate increased revenue growth resulting from the planned tax cuts? Instead of supply-side thinking working, the Plan does not anticipate revenue growth, rather a decline in BPT revenue and a smaller growth in wage tax revenues. As another reality check about the efficacy of business tax reductions, studies have shown that state and local governments have reduced billions of 210 2/27/08 - WHOLE - BILL 080022, etc. dollars in business taxes upon similar wishful thinking or effective business lobbying, which has shown little or no 5 economic growth impacts, but rather real evidence of weakening of infrastructure in government services, which all businesses and residents both need. And there's a study that was done by Professor Robert Lynch called "Rethinking Growth Strategies: How State and Local Taxes and Services Affect Economic Development," which lays this out and really shows how business taxes are a relatively small component of business costs and business profits and how businesses value a lot more things like a good workforce, infrastructure, transportation and a whole lot of other things that really depend on government services and infrastructure. We at least know that most of the targeted Cohen tax credit will have an economic stimulus effect by being spent within the City for goods and 211 2/27/08 - WHOLE - BILL 080022, etc. services.
For these reasons, on behalf of Philadelphia Unemployment Project, we join many other organizations to urge the retaining of City Council's historic contribution to tax fairness through this ordinance. Thank you. And this is Mr. Butler, who may wish to add a few words.
Thank you, Mr. Stein. We will now hear from Mr. Butler. Please identify yourself for the record.
Thank you, Madam President, and good afternoon. My name is Andre Butler and I am the Chairman of the Board of Directors at the Philadelphia Unemployment Project, and I'm privileged to be here today to testify before you, and, unfortunately, I'm glad to be back, because it's an issue that resonates and it's very 212 2/27/08 - WHOLE - BILL 080022, etc. important. First of all, I want to say last time I was here, our good friend, Howard Rye, was still above ground. Unfortunately, he is no longer above ground, and I know you all had a moment of silence, all that for him, but he was a great inspiration to me personally and to the organization and to society as a whole. Somebody said one time after he had passed, said that much of what people think and how people are better than society is ideas that he thought about. He wasn't always on the forefront, but he was always in the back and gave us ideas to go forward. So obviously he's sorely missed. I'm sure that what I'm saying is echoed by many people here in this here room. As far as the two issues before the panel today, the Cohen tax cut and the business privilege tax cut, let me say this: We see the actual people that it affects who come through our offices 213 2/27/08 - WHOLE - BILL 080022, etc. every single day. , and it's practically at least 35 to 40 people in that jobs club every single week. There are people in our office every single day who can barely have enough money to make transportation to get to their jobs, their day jobs, and then get back home. Every single penny which is in their pockets means something. Every single penny. Some bus drivers won't take 74 cents for that transfer. I don't care how nice you are to them. They want that 75 cents. When it comes time to paying your utility bills, you can make agreements if you want to, but sometimes they want that extra five cents or that extra dollar to make that agreement for you to pay so much once a month. So when you are thinking about cutting or repealing or eliminating the Cohen tax cut, remember that the economy 214 2/27/08 - WHOLE - BILL 080022, etc. is based on the money that they spend. Say what you want to say about the stimulus package that was put forth by the President, but it puts money back into the hands of people that need to spend to keep the economy going. Everything that happens -- everyone says the economy runs by the people spending money. And we are going to be starting to take money from those that spend it the most. And as I said before, the lower income people spend the most money. They don't save it. They always spend it on something, whether it's good -- they're always spending their money. And these are the main ones that you're going to take money from their pockets? Let's not forget that even this panel approved -- I may be saying it wrong, but somebody will correct me somewhere -- approved a bill that mandated that certain contracts, people that have certain contracts with the 215 2/27/08 - WHOLE - BILL 080022, etc. City, had to increase the amount of money that those people are making an hour when they're actually working. All right. They've got more money in their pocket. Now let's not take it from them and say that we're going to eliminate your tax credit. They need that money. We have approximately 140,000 people in this City who have no health insurance. They have no way to get there to get healthcare, no way to pay for their prescriptions. Every dollar that they have means they may be able to get their blood pressure medication or their diabetes medication, whatever it is that they're taking. If they don't have that money, they can't get their medication. Some of the money that the Cohen tax rebate would be saving would help them pay for that medication or pay for that dinner on their table or help pay that mortgage or their rent. 95 if your mortgage is a thousand dollars. 216 2/27/08 - WHOLE - BILL 080022, etc. They won't take that. They'll tell you they won't take that.
They'll either send it back to you or charge you a late fee or an under fee for not having enough money there, for that one cent or that one dollar. Let's not forget that. We are supposed to be the City of Brotherly Love. You all in this Chamber here are voting for the lives of the citizens of this City, not just your political interests or your party interests. Remember, you represent the people in this City, and they're looking to you all to look out for their best interest, and their best interest is that we keep as much money as possible in their pockets. Now, my colleague brought up the study by Professor Lynch, and Councilman Green asked Mr. Mandel if he had any kind of numbers on the effect of the business privilege tax cuts and City services, and Councilwoman Blackwell asked Stan Shapiro about him representing 217 2/27/08 - WHOLE - BILL 080022, etc. Neighborhood Networks and talking about the Cohen tax cut. Well, remember, as you all know, many of us, myself, Mr. Stein, Stan Shapiro, all of us represent a group called, as you know, One Philadelphia, which was formed to talk about the budget and talk about tax cuts. So sometimes we may be playing two hats at one time, but we're all in this same idea together looking out for everybody. Now, Professor Lynch in his report, he stated -- and if you want us to give you copies of it, we can certainly supply that to you -- where businesses are more concerned with schools, education, crime, dirty or clean streets, infrastructure. That's where they base themselves on coming -- not the tax structure. It bothers them, but it's not their main purpose for not coming here to this City. It's the infrastructure. It's the crime. It's the other things that affects them from 218 2/27/08 - WHOLE - BILL 080022, etc. coming. Now, if we're going to start dealing with those issues, which we are, then let's not try to get everything and try to eliminate taxes, too, on the people that could really afford it. We're going to have a situation where the rich are going to keep getting richer, the poor are going to keep on getting poorer. If we -- and as Councilman Jones said -- I wish he was here to actually hear this. As he said, tax reform you think would mean taxes across the board, but rightfully so, nobody has talked about or has e-mailed him to say we want to reduce or we want to eliminate the Cohen tax rebate, because that affects the most people that spends the money, the lower, the middle-income people. And if you eliminate the Cohen tax ordinance, you're really not having tax reform. You're just making them pay 219 2/27/08 - WHOLE - BILL 080022, etc. for some of what the proposed business tax cuts that are going to be eliminated and the revenues are going to be eliminated on the backs of the poor, underprivileged people. So in my conclusion, remember -- and, Madam President, you made a good point when you started. You said there should be more people here today about this issue. Many of them don't come here because they feel like I felt ten years ago, people have no say. The small man has no say. The big shots do just what they want to do. I was thankful to be a part of PUP to change my mind. I can see it a little bit different now. So we're here speaking for those who either cannot or will not speak for themselves. We're here to let you know the people, human side of this issue. We live and we progress our lives to own a business. We that own businesses know what comes with that, 220 2/27/08 - WHOLE - BILL 080022, etc. paying certain taxes. It's part of owning a business. It's part of being an actual businessperson. So those things are supposed to be. And they help to fund, as Councilman Green said, they help to fund City services. Ladies and gentlemen, let us not turn our backs on the people, the average Tom, Dick and Jane and Sue of this City.
Let us keep them able to live in this City comfortably, pay their bills, try to make ends meet, and let's not take the money from those that do have the money to help to pay -- to help keep the City going and let them continue to get richer. Thank you.
You're welcome. Any questions or comments from members of the Committee? (No response.)
Seeing none, thank you. Thank you very 221 2/27/08 - WHOLE - BILL 080022, etc. much.
Just a moment, Mr. Stein. The Chair recognizes Councilman Green.
Mr. Stein, I just want to take the opportunity to thank you for your well-researched, thoughtful and specific testimony. I find it very helpful. And also I just want to commend you for printing on both sides of each piece of paper. I appreciate that. Thank you.
Thank you. Our next witness? MR. McPHERSON: Representative Mark Cohen. (Witness approached witness table.) 222 2/27/08 - WHOLE - BILL 080022, etc. REPRESENTATIVE COHEN: Thank you. If someone would like to distribute this.
Very well. Good afternoon and welcome. REPRESENTATIVE COHEN: Good afternoon. I am pleased to announce that this testimony meets the green standard of being printed on both sides of the paper. Madam President, leaders and members of City Council, I am here to discuss the targeted tax for low-income people exempt from the state income tax. No political issue that my father was involved with during the last years of his life inspired more of his energies or had a greater public impact. The greatest percentage of the vote that he achieved in 11 candidacies for City office occurred, nearly 70 percent, occurred in the 2003 democratic primary when he was 88 years old. A key 223 2/27/08 - WHOLE - BILL 080022, etc. reason for his personal record for the highest percentage of the vote was his outspoken support of this targeted tax cut for low-income people. I called his attention to the odd fact that the City of Philadelphia taxes low-income people more than either the state government or the federal government taxes when Inquirer business columnist Andrew Cassell wrote a column about it sometime around 2001. David Cohen studied the matter thoroughly and became the most impassioned advocate for tax justice for low-income people that Philadelphia ever had. Philadelphia's wage tax dates to the 1930s, while Pennsylvania's income tax only began in the 1970s. Pennsylvania Governor Milton Shapp had a deep understanding of issues of tax justice, and his lawyers gained Pennsylvania Supreme Court approval to exempt low-income Pennsylvanians from the state income tax, despite the existence 224 2/27/08 - WHOLE - BILL 080022, etc. of a uniformity clause in the State Constitution. 31 percent for both City residents and non-residents, the largest increase in Philadelphia history. But those financially hard-pressed times are over. 394 percent for non-residents. The tax cuts for non-residents, many of whom earn very good salaries in our City, alone costs the City much more money than would the maintenance of the existing tax cut for low-income families in 2013. Southeastern Pennsylvania today and the City of Philadelphia are 225 2/27/08 - WHOLE - BILL 080022, etc. composites of many different communities. Former City Commerce Director Dick Doran wrote in his memoir, "Suddenly 65," how much at ease he felt traveling in foreign countries and how ill at ease he felt traveling in North Philadelphia. In recording his impressions, he was clearly uncomfortable with his views about North Philadelphia. We in government today have to face the fact that some parts of Philadelphia have greater concentrations of wealth than ever before and other parts of Philadelphia have greater concentrations of poverty than ever before. We have to face that fact, and we have to face what lack of adequate income does to people. It is common for people with high income to ask for tax cuts. It is obvious that tax cuts for high-income people can produce significant benefits for them. The benefits of tax cuts for low-income people are less obvious, but 226 2/27/08 - WHOLE - BILL 080022, etc. of even greater importance. On television, on radio, in shopping circulars, in store windows are endless attempts at persuasion to buy this or that or the other thing. Those parents who meet the demands of their children in response to the advertisements have a tool to gain and hold the respect of their children that parents with lower incomes simply lack. When parents cannot influence their children, the children are likely to rebel. Sometimes that rebellion takes positive forms, but all too often the rebellion takes the forms of disobedience and crime. My constituency includes low-income people, but I have some constituents, probably more constituents than low-income people, concerned about how low-income people threaten their lives. My constituents fear being crime victims. My constituents fear drug dealing. My constituents fear walking 227 2/27/08 - WHOLE - BILL 080022, etc.
the streets at times. Forty-one percent of Philadelphians rent apartments or houses, a far higher percentage than exists in any other Pennsylvania county. The fair market rent of a two-bedroom apartment in Philadelphia is $757 a month. The more people live in adequate housing, the less the culture of despair, hopelessness and anger takes hold. Low-income people in Philadelphia have more severe problems with credit than the average person does. They are more likely to miss payments of even small amounts and, thus, be forced to pay late fees, penalties, surcharges and higher interest rates. The old saying that it costs a lot of money to be poor is accurate. Giving low-income people more money to spend for their children has effects that go far beyond maintaining the children's respect for them. As a parent of an academically gifted high 228 2/27/08 - WHOLE - BILL 080022, etc. school student, I have seen firsthand how the ability of my wife and I to spend small additional sums of money for our daughter's school projects has helped her. Her excellence in completing school presentations with visual displays at a cost of $5, $10 or $15 a project led her to be invited to join Masterman Junior High School's National Academic League Team. This, in turn, this positive experience, led her to join Central High School's Debating Society. Similarly, our ability to take her to the zoo helped her score well with tests dealing with animals and our ability to get her an educational toy dealing with the facts about the 50 states helped her score well on a test dealing with the 50 states. Low-income kids simply don't have these opportunities. But any additional money that can be spent on their education can pay significant 229 2/27/08 - WHOLE - BILL 080022, etc. dividends for them and our City as a whole. The problems of low-income citizens are great. Reducing these taxes is but one of many things we have to do to help them. But every time a parent is able to buy a toy or a meal or an item of clothing for a child or, as the previous speaker said, pay for transportation somewhere, the parental bond is strengthened and the forces of stability and respect in this City are enhanced. The cost of the David Cohen tax cut is small. The annual City budget in 2013 will be in the $4 to $5 billion range. The benefits are great. I urge the members of the City Council to fight to keep this tax cut and to work to make this City one that works to both raise people from poverty and despair and the culture of anger and hopelessness. I urge thorough evaluation and rejection of the plan to kill the David Cohen tax cut. There is a far better 230 2/27/08 - WHOLE - BILL 080022, etc. case for making the David Cohen tax cut effective immediately in 2008 than there is for abolishing it entirely in 2013. Thank you.
Thank you very much. Are there any questions or comments from members of the Committee? (No response.)
Seeing none, thank you again. REPRESENTATIVE COHEN: Thank you. MR. McPHERSON: Our next witness is Shelly Yanoff. (Witness approached witness table.)
Good afternoon. Welcome. Please identify yourself for the record and proceed with your testimony.
Good afternoon. I feel like breaking into what seems like old times. 231 2/27/08 - WHOLE - BILL 080022, etc. Anyway, I'm Shelly Yanoff. I'm the Executive Director of PCCY, which is now called the Public Citizens for Children and Youth. We have changed our name a little bit. Before I begin making formal remarks, I want to thank you for holding the hearing and for scheduling public testimony right after this morning's hearing. I urge you and join with lots of others who are urging you to schedule additional opportunities for public input throughout the budget process. Our message today is really simple: Taxes can't be separated out from the services they're used to pay for, and cuts in revenue will inevitably bring concerns about the impact on needs. The reforms that you will be asked to vote on during this budget cycle will affect our City, not just over the next year, but years to come. Effective tax reforms have the potential to support a generation of Philadelphia's children and 232 2/27/08 - WHOLE - BILL 080022, etc. youth as they mature into productive adults. We are concerned, however, that needed services need to have the resources that we're not sure they have in this budget. We join you in working to make Philadelphia a child and family-friendly city, and believe that such efforts will result in a better city. As Philadelphia becomes more focused on family friendliness, it will attract more support from businesses as well as families. Study after study, including that of Professor Lynch that John Stein quoted, tell us that the best economic investments, in the review of the Federal Reserve Bank as well as economists from throughout the country, are investments in early childhood programs. The budget before you puts little into childcare. We urge that more attention be paid to this, both in the childcare facilities fund as well as innovative and linkage plans so that we 233 2/27/08 - WHOLE - BILL 080022, etc. can get more early childhood programs so the kids are more ready for school. Experts also tell us that an educated workforce is critical to business decisions, and we're glad to see more support for education, for lowering the number of dropouts and at last a boost for Community College. That is good news, but we need to do much more. PCCY believes that the best way to foster a thriving economic and civic life is by creating a child-friendly city, and that city would be one that supports many things for kids and families. These include quality education, starting in early childhood and extending through college. As we said, we're pleased to see the commitment to support public education more and to increase the support for Community College. These are two investments that are sound financially and are part of the critically important community-building strategy we need. 234 2/27/08 - WHOLE - BILL 080022, etc. Additionally, we hope that you do all you can to support the major step forward in education funding that the Governor's proposal represents. We also commend support that is in this budget for more jobs for youth, another vital link to a good future. Good healthcare, beginning with prenatal care and encompassing not only physical but behavioral healthcare, is very important. We commend the increase in supports for the health centers, and this Council has been very important in that over the years, but we are afraid that due to decisions at the federal level, there's going to be much more demand on the health centers, and we are concerned that there's not enough funding in the increase to be able to provide the kind of supports needed. We're also concerned that this City's progress in getting the lead out of kids' lives is really at risk. We must continue and sustain that investment 235 2/27/08 - WHOLE - BILL 080022, etc. every day, in spite of the fact that we have really gone from being the worst city in the country to one of the best. Every day kids are being poisoned.
We've got to really seriously invest in that. We need plenty of after-school recreation and job readiness opportunities. We're concerned that the Recreation Department and the Library will decline unless more supports are found for these vital services. They help kids and families. They build safe and strong communities. And we need services to ensure that children grow up safely and support them to make good choices in their lives. In spite of much bad publicity over the past 18 months, the City's prevention efforts appear to be taking hold. There has been a marked declined -- and we have sent all of you this report. There's been a marked decline in the number of abused and neglected children in the City in the last three years. There's also 236 2/27/08 - WHOLE - BILL 080022, etc. been more prevention and supports. We urge you to make sure that we keep prevention in front as you look at the budget. As you know, it's much more important and much cheaper to focus on building than later to focus on repairing. For the City of Philadelphia, any discussion of tax reform must go hand in hand with a clear-eyed assessment of the need for services to children and families. As you know, taxes are the price we pay for living in a civilized society. We need to make sure that we are paying enough so that we have the services that kids and families need. Thank you very much.
Thank you. Are there any questions or comments from members of the Committee? (No response.)
Seeing none, thank you, Shelly. 237 2/27/08 - WHOLE - BILL 080022, etc. MR. McPHERSON: Our next witness is Sherrie Cohen. And, again, her testimony has been distributed. (Witness approached witness table.)
Good afternoon. Please identify yourself for the record.
Yes. Good afternoon. My name is Sherrie Cohen. I'm here today to speak on the David Cohen working families wage tax rebate, legislation my father fiercely fought for during his life, which two Mayors now have sought to slash and burn since his death. I wish to thank the Councilpeople who are looking for ways to preserve it. First, I want to comment on the fact that this hearing is being held today so early in the budget process. I want to thank Council President Verna for modeling this more participatory budget process. Imagine on the very same day in which the Administration testifies on 238 2/27/08 - WHOLE - BILL 080022, etc. taxes the public is permitted to testify also. This is completely unlike the remainder of the budget process where a department head testifies on one day, yet the public may not get to testify until one month later. A more participatory budget process is what One Philadelphia, a network of advocacy groups, has called for, a call supported by the Daily News. Let's engage the people of this City in their own budget process. Let people testify immediately after the department heads of their government. Let's bring City Hall to our neighborhoods and at times when most people are not working. Why must budget hearings be held during the day in City Hall when people are working? Why can't we bring these budget hearings to the neighborhoods of our City and on evenings and weekends when people can attend and testify? The budget is the statement of priorities for our City. The people of 239 2/27/08 - WHOLE - BILL 080022, etc. our City must shape it. The people must be heard from in a timely manner if our testimony is to have any influence at all. Since my father can't be here to speak about the importance of preserving his wage tax rebate for working families, I thought I would quote him directly. These are statements by him in an article in the Northeast Times which appeared on July 31, 2002. " Quote, "Some people will say that this program is too costly, that it will reduce the ability to deliver City services, he said, responding to common criticisms of the bill. Those claims are false. If it passes, it will strengthen Philadelphia and make a tremendous difference in the life of a worker making 15 to 20 thousand 240 2/27/08 - WHOLE - BILL 080022, etc. dollars a year. " Quote, "It will impart dignity to those people, to the single parent, the family wage earner, the senior citizen who works part time. These people are entitled to fairness and equity in society, and that's all we're saying in this bill. There is no dignity to work if your work doesn't produce enough income to provide the basic necessities for your family. "Cohen said that his bill could provide further incentive for folks to leave welfare because it makes the transition financially feasible. Many former recipients who leave welfare to enter the workforce realize that their salaries cannot sustain their families, and the lower paying jobs they took don't provide minimum medical benefits, Cohen said. "Cohen characterized the bill 25 as," quote, "having such clear merit, it 241 2/27/08 - WHOLE - BILL 080022, etc. ought to pass unanimously. There is not a single Council district among the ten of them where there aren't thousands of people who are eligible, he said. " Quote, "I hope this is the beginning of a movement to politically mobilize the City in a way that's never been seen, a real participatory effort, he said. This is just one example of why it is so important to get involved in every phase of City government," end quote. Those were my father's words. These words are mine: I am appalled that Mayor Nutter seeks to eliminate the first progressive wage tax legislation ever passed in Philadelphia. I am appalled that he changed his position on this tax rebate for working families after he became Mayor. Mayor Nutter is a strong believer in tax cuts, apparently so long as they are not targeted to the people 242 2/27/08 - WHOLE - BILL 080022, etc.
who most need the help. Under the existing legislation, the two-parent two-child family with an income up to $34,250 would be eligible for a tax rebate. Even the state and federal governments both provide these tax refunds. In fact, the IRS states that every dollar received from the federal tax refund, called the Earned Income Tax Credit, puts up to $3 into local communities. Councilwoman Maria Quinones-Sanchez indicated in Council yesterday that elimination of this legislation may perhaps not be appropriate when one quarter of the people in our City are living in poverty. I ask, has there been a vast decrease in the poverty level of Philadelphians so that the Cohen tax rebate is no longer necessary? I think we all know the answer to that question. As the Mayor's Five-Year Plan itself states, Philadelphia has one of 243 2/27/08 - WHOLE - BILL 080022, etc. the highest poverty rates among the nation's most populous cities. S. 1 11 percent. So the percentage of 12 Philadelphia households living in poverty 13 has increased in recent years, not 14 decreased. 15 Let's not hurt those in 16 greatest need. We can bring in the 17 needed revenue in many other ways. I'd 18 like the Revenue Department to tell us 19 how much do we need to slow the business 20 privilege tax cuts or the across-the-board wage tax cuts in order to accommodate the Cohen targeted tax rebate. Or tell us which big businesses, like banks, do not pay the business privilege tax, and how much would the 244 2/27/08 - WHOLE - BILL 080022, etc. City benefit by eliminating preferences for them. Or as was suggested yesterday, apply the state's gaming revenues to fund the across-the-board wage tax cuts, and then other revenue would be available to pay for the Cohen working families tax rebate. There are many different ways to tax in order to bring in the revenue our City needs. The question is who carries this burden? Those who can afford it the most or those who can afford it the least? Those who can most defend themselves against City Hall or those who can defend themselves the least? It is not fair to put the burden on the people who can defend themselves the least. I repeat my father's call almost six years ago for a citywide political mobilization. We must preserve or move up the Cohen tax cut for low-wage workers. I urge the Mayor to withdraw his bill for the elimination of the Cohen 245 2/27/08 - WHOLE - BILL 080022, etc. tax cut. If the Mayor fails to do so, I'd like to remind those Councilpeople who in June 2006 voted to delay this tax cut that they said then that it was only a delay they were seeking, not elimination of the tax cut. I urge Council to overwhelmingly reject the Mayor's regressive legislation which burdens most those who can afford it the least. As my father said, quote, "there is not a single Council district among the ten of them where there aren't thousands of people who are eligible. There is no rich district in the City," end quote. Thank you.
Thank you, Sherrie. Any questions or comments from members of the Committee? (No response.)
Nice seeing you. Thank you so much for coming in to testify. 246 2/27/08 - WHOLE - BILL 080022, etc.
Our next witness? MR. McPHERSON: Tim Kearney. (Witness approached witness table.)
Good afternoon. Please identify yourself for the record and proceed with your testimony.
Good afternoon, Council President Verna and all members of City Council and ladies and gentlemen in the audience. My name is Tim Kearney and I'm here to testify and to urge Council to vote not to repeal David Cohen's tax cut reduction legislation for low-income families. Almost everything in my testimony you can read and has been mentioned by people, so I'm not going to read it word for word.
Very well, but we'll make certain that a copy of your testimony that you presented us 247 2/27/08 - WHOLE - BILL 080022, etc. is given to the stenographer, and it will be transcribed in full.
What I would like is just to add some comments. The cost of living -- I'm running, as it mentions in my testimony, for State Representative. This is the third time that I'm running for State Representative, and that means that in two primary elections and two general elections I've gone door to door and I've talked to people throughout the 172nd District, which includes Fox Chase, Academy Gardens, parts of Bustleton, Mayfair, part of Tacony, Lexington Park, a little bit of Rhawnhurst and a couple other smaller sections, a section of Holmesburg, and the one that I can tell you is that the cost of living is a really important issue for a lot of people in the 172nd District. As Sherrie 248 2/27/08 - WHOLE - BILL 080022, etc. mentioned, Councilman Cohen said there's no one of the ten Council districts that doesn't have people that would be helped by this low-income tax credit, and in the 172nd District in Northeast Philadelphia, that certainly is true. There's many, many people in this district that are working full time and making six or seven or eight or nine dollars an hour who would be eligible for this and for whom it would be very beneficial. It is one of the few ways that the tax is made progressive, and I'm a very strong believer in progressive taxation. And I guess the only other thing I would like to emphasize that a number of people said is that the extra money that somebody is going to get when they file to get their refund at the end of the year is going to be needed and necessary to pay bills, that it's really an issue of making ends meet for many families and being able to pay things and 249 2/27/08 - WHOLE - BILL 080022, etc. keep their heads above water financially. I've been impressed. It's not often that you see an institution press so hard for an issue and do it over and over and over again, but the Philadelphia Daily News has run at least 8 editorials, maybe more, on the Campaign 9 for Working Families, which we've had 10 running now for a few years in the City 11 of Philadelphia, to try so hard to get 12 low-income families knowledgeable about 13 the Earned Income Tax Credit, to apply 14 for it and to get it and so they have it, 15 and less so but increasingly for the 16 state tax-back program, which models or 17 parallels the federal program. If this 18 low-income family tax reduction at the 19 City level stays and is implemented in a 20 few years, there will be even more 21 incentive for low-income families to know 22 about all three of these programs. The 23 pot of money that they will be able to 24 get back will become much larger, and 25 more people, I think, will not only get 250 2/27/08 - WHOLE - BILL 080022, etc. the City but also get the state and the federal, which then will help them individually, but help the City as a whole, because that's federal and state money that comes back into Philadelphia and gets spread around the whole City. So I think that this is a wonderful bill. I think we should keep it. I think Council was fabulous a couple years ago when they overrode the Mayor's veto, and I hope that you'll change this Mayor's direction as well and keep this bill in place. Thank you.