On November 26, 2001, an already much discussed and
promoted "Tax Structure Analysis Report" was presented by
City Controller Jonathan Saidel to 150 business and
community leaders at a press conference held at the Chamber
of Commerce office. According to Assistant City Controller
Bruno Moser, there was good media turnout, including
several TV stations. Favorable articles were published in
the Philadelphia Inquirer, the Philadelphia Daily News, the
City Paper, and by the Associated Press, and in the Tax
News Update of the Center for Sustainable Economy. A
neutral perspective was published in Bond Magazine.
In releasing The Tax Structure Analysis Report,
City Controller Saidel was surrounded by supporters.
Chamber of Commerce president Charles Pizzi said, "This
approach, by someone in city government, is really
something we have been looking and asking for over the past
12 years. Greater Philadelphia Assn. of Realtors president
Anne M. Rubin said, "We believe this is better for the
homeowners and for the city."
Also with Saidel when he
unveiled the 93-page Report were five City Council
members, including Council Finance Committee chair Jannie
L. Blackwell. Council member James Kenney quoted the
Report that "Together, the increased property tax and
decreased wage tax would amount to just over a $100 savings
for a family of four with an annual household income of
$45,000 and a home with a market value of $80,000. Council
member Michael Nutter noted that while Mayor Street draws
up the annual budget, it must still be approved by the City
Council, which could choose to impose a new tax system.
"The city's tax structure is abominable, and it needs to
change," he said. Also present was City Council member
Blondell Reynolds-Brown. Another five Council people were
represented by their legal staff at Saidel's presentation
of the Report. Also speaking in support was Paul Tirjan,
the director of a venture-capital firm.
In a front page story in the Inquirer November 27,
staff writer Nathan Gorenstein, commented, as follows.
"Saidel's plan has three major components:
steeper reductions in wage taxes than those currently
called for by [Mayor] Street, reductions in city business
taxes, including one tax that companies must pay even if
they lose money; and an overhaul of the city's property-tax
system to reduce taxes on the value of buildings and
increase taxes on the value of land. By next year,
Saidel's plan would reduce the wage tax from 4.54 percent
for city residents to 4.00 percent. By 2007, wage taxes
would be cut to 3.5 percent for city residents and 3.375
percent for nonresidents, down from 3.9 percent. The net-
income portion of the busness-privilege tax would drop from
6.5 percent to 4.0 percent next July, whiile the gross-
receipts tax would drop from 0.24 to 0.20 percent. Land
would be taxed at a higher rate than buildings, resulting
in tax cuts for most homeowners. Some businesses would
see real estate tax increases, but Saidel argues that those tax
increases would be offset by cuts in business taxes. Saidel also
identified in the report $27 million to $95 million a year
the city can save through greater efficiencies.
According to Saidel's Report, currently taxes on
structures and improvements generate about 77.5 percent of
the city's real estate tax revenues. In October, Saidel
had briefed City Council members, who would have to approve
any changes in the city's property taxes. Under the plan,
the city would abandon the system that taxes land and
buildings at the same rate, and instead tax land at 3.44
times the rate imposed on buildings. Property taxes would
drop by modest amounts for 78 percent of city homes, but
increase for 50 percent of the city's commercial and
industrial property. Owners of parking lots, car
dealerships and other businesses with large tracts of
undeveloped space in prime areas are among those who could
face higher taxes.
Saidel said that his land-value tax plan would
complement the mayor's proposed $250 billion blight bond
program, which aims to demolish 14,000 structures (at least
8,000 of them in imminent danger of collapse) and improve
2,500 vacant homes. The land-value tax plan would
discourage developers from "land-banking," or allowing
buildings to decay in an effort to reduce real estate taxes
before redeveloping property. Currently, Saidel said,
residents who make improvements to their homes or
businesses are penalized through higher taxes, thereby
discouraging urban investment. Saidel calls his proposal
an attempt to halt the exodus of Philadelphia's middle
class. "If we don't do that, he said, "ten years from now
we're going to be a Center City with downtown, the very
poor, and seniors who can't sell their homes," and will be
more dependent every year on Harrisburg and Washington
[state and federal capitals].
A "Land Tax in Philadelphia: What Will It Mean"
fact ad paid for by the Greater Philadelphia Association
of Realtors(R), published in the July 19-26, 2001 edition
of Philadelphia's City Paper, explained that currently in
Philadelphia (with a rate of 82.64 mills) on real property,
that about 78% of the property tax revenue comes from
buildings, with only about 22% of the property tax revenue
coming from land. Since senior citizens keep up their
homes and most of the tax bill now comes from the structure
itself, they would assuredly see a decrease in their taxes
with the land value tax. Compared to the usual senior/low-
income property tax relief programs, one does not have to
apply for it [LVT].
Many properties that pay are owned by
absentee owners who have little or no stake in maintaining
an attractive, economically competitive community. LVT
helps capture the value of government investment.
Federal, state, and county aid to assist in redevelopment
usually is a signal for speculators to buy up all available
land and sit on it for speculative purposes. A land tax
will make it less easy to hold onto land that should and
could be developed more quickly.
On November 9, the Philadelphia Inquirer featured
an Op-ed piece by University of Pennsylvania Wharton School
Finance and Economics Professor Robert Inman, who is also a
member of Mayor Street's Council of Economic Advisers.
Professor Inman pointed out that businesses that "in the
... 1970s and 1980s the city's 19 tax increases drove out
the tax base and set the stage for the fiscal crisis of
1990. Progress has been made over the last seven years in
reducing the two most economically damaging city taxes:
the commuter wage tax and the gross receipts tax. Recent
research by me and my colleague Andrew Haughwout shows that
even modest reductions in these two taxes will increase
city jobs, city wages, and city home values. These
increases in tax base, unfortunately, will not be enough to
prevent some loss in city revenues. ... Revenues raised by
a modest, well-administered land tax can be used to replace
the revenues lost from reducing the rates on commuter wages
and gross receipts. Businesses that own land in the city
give up two bad taxes for one good one. City homeowners
will face a higher overall tax, but they get higher home
values, higher wages, and more opportunities. Now more
than at any time since 1990 is the time for efficient
provision of government services funded by efficient and
fair taxation. If well administered, a land tax could be a
useful part of the mix."
On November 27, Mark Alan Hughes, who teaches at
Penn's Fox Leadership Program, wrote in the Philadelphia
Daily News, as follows. The Tax Structure Analysis Report
issued yesterday by City Controller Jonathan Saidel is the
best policy statement from any city government in my 20
years of policy analysis and research. ... let me present
three of the many things you should know about the report
and what it means for all of us. ... Saidel assumes no big
changes in city spending. He proposes to fix this mess
strictly on ther tax side rather than calling for a
reduction in city services ... he's transparent in his
assumptions, allowing us to evaluate his judgment calls for
ourselves. ... Second point: Many people will focus on the
wage-tax reductions and the modest move toward a land-value
tax in Saidel's plan. But just as significant are his
proposals for reform of business taxes. Our business
privilege tax (on gross receipts and net income) and net
profits tax are a mess, making confusing distinctions
between businesses with disastrous consequences for our
local economy. Saidel's plan would reduce or eliminate all
of the city's major business taxes. However, the bulk of
that tax relief would be targeted at firms that do business
in the regional and global marketplace. In effect, the
controller seeks to make Philadelphia a tax haven for
people and businesses that export to the outside world -
and import money into the city rather than simply
recirculate dollars already here. ... Third point: Saidel's
plan assumes a modest "supply-side" effect. That means
that the controller assumes that cutting taxes will lead
fewer people and firms to leave the city and persuade some
of each to come or expand here. Of course, that's the main
point of cutting taxes, as any economist will tell you...."
Philadelphia Mayor John Street was not receptive to
City Controller (also an elected office) Saidel's plan.
"It would be hard to endorse the proposal at this time,"
Street said of the land value tax proposal. The Mayor's
aides said that with the nation's economy sliding into
recession, the city cannot start changing the complicated
mix of taxes that funds the city's $2.9 billion budget.
City Budget Director Rob Dubow said any change in the
city's taxes must await a (years away) statewide overhaul
of the property tax system. Philadelphia plans to decrease
the wage tax to 4.39 percent for city residents and 3.81
percent for non-residents over the next five years. Debow
said the administration's view is that changes should be
made gradually and called Saidel's proposed changes too
expensive and said that they could negatively affect city
services. The wage tax raises $1.2 billion, or 45% of the
city's revenue, and currently is 4.54 percent for city
residents and 3.95 percent for non-residents. Philadelphia
officials say that city government can't afford what they
estimate over five years under Saidel's proposal would be
the loss of $900 million revenue in wage and business tax
cuts. According to Philadelphia Finance Director Janice
Davis, where there's built-up demand, something like the
land tax would work, but it doesn't really address the
absence of demand in the existing environment.
(Philadelphia lost 4 percent of its population since 1990,
and 500,000 residents since 1950. The number of jobs
dropped 6 percent, and its taxes remained among the highest
of any city.)
By making the city more business-friendly, Saidel
said his reforms would "expand the tax base and increase
revenues in the long term," but his plan acknowledges that
in the short term, the city would likely see a reduction in tax
revenue. He maintains that there is enough breating room in the
city budget to handle up to $629 million in lost revenue over four years -
what the report calls the "worse-case scenario." Though
he admits the plan is going to be a hard sell because of
the region's worsening economy and the plight of the public
school system, Saidel challenged naysayers, "If you say no
to all my charts and assumptions and demographics and work
that we've done, give me an alternative, because the
alternative can't be that we stand still." (The
Philadelphia City, School District, and County are all one
taxing unit.)
On November 29, the City Council passed a
resolution to hold hearings on abandoning the existing
property tax system that taxes land and buildings at the
same rate. The hearings to instead tax land at 3.44 times
the rate imposed on buildings probably won't be held until
after January 1, 2002. Besides the previously built-up
support for Saidel's proposal, the Center for Study of
Economics arranged for meetings with the Mayor's financial
staff.
Philadelphia is the birth city of Henry George, who
proposed the land value tax in his world-wide best selling
book in 1879, Progress and Poverty. The birth home is the
location of the Henry George School of Social Science in
Philadelphia. Edward Dodson, a long-time advocate of
exempting property improvements altogether in favor of the
tax on land values has helped to organize a public forum on
land value taxation, scheduled to be held at the Federal
Reserve Bank in Philadelphia in two parts (January 30 and
February 20.) Professor of Economics Nic Tideman will be a
featured presenter at the January 30 session. Dodson is
the author of "Can a City Raise Needed Public Revenue and
Stimulate Its Economy at the Same Time?" that was published
in the Sept.-Oct. 2001 GroundSwell.
The Center for the Study of Economics, of which
Joshua Vincent is President, moved in the spring of 2001
from Columbia, MD to Philadelphia (see May-June 2001
GroundSwell). Pennsylvania Fair Tax Coalition State
Coordinator Alanna Hartzok organized the "Public Finance
Alternatives Regional Forum" held January 29, 1998 in
Philadelphia (see March-April 1998 GroundSwell). Hartzok
and Philadelphians for LVT coordinator Uda Bartholomew, a
Henry George School graduate, organized a Philadelphia Tax
seminar June 9, 2001 in Philadelphia (see May-June 2001
GroundSwell). The organizations of Hartzok, Vincent, and
Bartholomew also hosted a one-day intensive seminar, "Land
Rights and Democracy in Philadelphia" on December 1 at the
University of Pennsylvania.
Former Philadelphia City
Councilman James Tayoun, who in the 1980s introduced a two-
rate bill for Philadelphia which did not make it out of
committee, now owns and operates the Public Record
newspaper and helps publicize Controller Saidel's proposal
as well as other pro-LVT articles. Other Henry George
School-Philadelphia associates involved in backing the
Saidel proposal are Jacob Himmelstein, Pat Lowe, Brian
Cole, Richard Biddle, Donald Hurford, Sr., Joan Sage,
Education Director Ken Forde, and his assistant Lu
Cippolloni.