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Philadelphia woke up Thursday with the first sign of relief for the city’s oppressive poverty rate in more than a decade. The U.S. Census Bureau’s latest report showed the city’s poverty rate has dipped below 25% for the first time since the 2008 recession.
Citing that good news in City Hall on Thursday, Councilmember Allan Domb introduced legislation that he hopes will put more money back into the pockets of struggling Philadelphians.
The bill proposes to give wage tax rebates from $360 to $1,700 to families living in poverty. A similar law passed in Philadelphia 15 years ago, but was repealed before it went into effect — and there are lingering concerns today over whether Domb’s proposal will survive budgetary concerns.
Philadelphia’s oft-maligned wage tax is the highest of its kind in the nation — and the city leans on it for 44% of its annual revenue. Domb argues the city budget has boomed in recent years, and the city should not be tapping its poorest residents for tax dollars.
“We charge people in poverty the highest levels of taxation…and it’s all coming from city wage tax,” Domb said. “They can’t put food on the table.”
Councilmembers Maria Quiñones-Sánchez and Jannie Blackwell support the legislation. Other in Council said they need to take a deeper look at the numbers.
The real hurdle will be whether Mayor Jim Kenney’s administration will sign off on letting go of that money from the tax rolls. Domb estimates the rebates would total $43 million a year.
A Kenney spokesperson said the administration hasn’t reviewed the proposal yet.
How much money could Philadelphians get back?
The legislation would impact about 60,000 households who live below the poverty line in Philadelphia, according to Domb’s office.
It would work like this: Workers below a certain income would still pay the city’s wage tax from their regular paychecks, but the city would send them a refund at the end of the tax year.
The kickback would vary based on income levels and the number of dependents you claim on your tax return. Applicants would have to apply.
Domb argues the infrastructure is already in place for quick implementation. Qualifying workers already receive a wage tax reimbursement — Domb just wants to increase the amount.
Some quick math: The wage tax sits at 3.88% for Philly residents and 3.45% for non-residents who work in the city.
Right now, the city reimburses 0.5% from those deductions to some low-income taxpayers. Domb’s bill proposes bumping that reimbursement to 2.36% — with hopes to eventually bring it up to refundingthe full levy.
A similar wage tax rebate passed in 2004 — then flopped
Domb’s proposal began circulating in Council earlier this year.
In 2004, the late Councilmember David Cohen worked the chamber to pass a bill that would provide a $300 flat wage reimbursement to the average low-income taxpayer. Cohen died the following year, and Council stalled the rebate’s implementation. The legislative body ended up repealing the law entirely in 2012, citing crushing budgetary constraints.
“We can’t afford that level of tax relief at this time, and in the near future,” then-Mayor Michael Nutter said at the time.
Domb’s bill has already earned some outside support. Beth McConnell, policy director at the Philadelphia Association of Community Development Corporations, said a wage tax rebate would provide tremendous help for the city’s lowest-income — and it could also be an economic boost for the city.
“[Philadelphians] will spend those funds on necessities like food, housing, clothing, helping them stretch their limited incomes further and circulating those funds in our local economy,” McConnell told Billy Penn.
Can the budget handle the lost tax dollars?
Domb said his bill is structured differently, but the principle is the same as Cohen’s bill from years ago. He also noted the city’s budget has grown over $1 billion in the last four years since Kenney took office — and letting go of these tax dollars should not hurt the rolls.
Legality remains another issue. Pennsylvania tax code has a “uniformity clause” that prohibits taxes different classes at different rates. Council sources explain the rebate as a way to workaround the uniformity issue, as everyone is still taxed the same.
The bill has yet to be reviewed by Mayor Jim Kenney’s administration. City spokesperson Mike Dunn noted the administration has already approved incremental reductions in the city’s overall wage tax rate. That and other reforms “represent a projected $136 million of foregone revenue” over four years, he said, which is “an investment in the city’s economic growth.”
City Councilmember Bill Greenlee, who helped repeal the first wage tax bill in 2012, said finances were the main concern then, and they’ll be the main concern now.
“I’m all for helping lower-income people, and I may wind up supporting the bill — we’ll see — but I have to see what effect it will have on the budget,” Greenlee said Thursday.
