Tax the rich? A new bill in City Council would place a levy on stocks and bonds

The Philly Wealth Tax could bring in $150 to $400 million a year, backers say. It’s unlikely to pass, but could shift the conversation.

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Just in time for budget season, Philadelphia Councilmember Kendra Brooks is reintroducing her push for a tax that would disproportionately affect the city’s richest residents.

Dubbed the “Philly Wealth Tax,” the policy is being announced today during a press conference with Massachusetts Sen. Elizabeth Warren and Councilmember Helen Gym, among other advocates.

Brooks, who was elected to Council as a member of the Working Families Party, introduced a similar policy in June of 2020, but the legislation never got a hearing.

The bill is essentially a revival of Pennsylvania’s Personal Property Tax, a statewide levy on “intangible personal property” — defined as direct holdings in stocks and bonds, as well as mutual funds and ETFs — at a rate of 0.4%. (For example, you’d owe $4 for every $1000 in holdings, or 4¢ out of every $10.) Tax qualified retirement accounts, a 401(k) or IRA, for instance, would be excluded.

As written, the tax would apply to all residents, but backers say it would mostly affect the wealthiest, who are much more likely to directly own stocks or bonds.

Across the U.S., more than half the population holds stock in some form, but only 15% own direct holdings. More telling, the wealthiest 10% of Americans hold nearly 90% of all stocks on the market, and white Americans own around 90% of stocks. These ratios are also broadly representative of the situation in Philly, hence the claim that the bulk of the revenue from Brooks’ levy would come from the richest Philadephians.

So if the Personal Property Tax is already state policy, why hasn’t it been in use? And what would these funds be used for if collected? Will the bill get a hearing this time?

Here’s what we know about the proposed Philly Wealth Tax.

108-year-old tax makes a return?

The Pennsylvania Personal Property Tax dates back to 1913. It was built on an even older state policy that taxed $1 out of every $1,000 in “intangible and tangible personalty within the commonwealth.”

The revenue was originally to be split between county needs and school district needs, but the school funding aspect was removed in the 1960s. In the ’70s, the law was reworked so individual counties could decide whether or not to enforce it. Philadelphia was one of those that kept the tax active.

In the ’90s, the tax came under increasing legal fire, spurred by the U.S. Supreme Court decision in Fulton Corporation v. Faulkner — a case out of North Carolina where a similar policy was challenged because it exempted holdings of any business that was based in the state and run by state residents. The court unanimously decided the exemption was unconstitutional for putting an undue burden on interstate commerce.

Pa.’s Personal Property Tax had an exemption only marginally different from the North Carolina rule in question, and a lawsuit followed shortly thereafter.

The judge ruled that Pennsylvania’s exemption was illegal, but the law itself was not. So while Philly hasn’t enforced it since the 1990s, and most counties do not enforce it today, the Personal Property Tax is still on the books, after a 2019 attempt to repeal it passed the state House but stalled in the Senate.

The Philly Wealth Tax would bring back a similar levy, but without any exemption on holdings in Pennsylvania businesses.

Will the bill get a hearing this time?

Councilmember Gym — who was the 2020 bill’s cosponsor — and Councilmember Jaime Gauthier are cosponsoring the policy, but wider support for the bill on the council is unclear. Observers think it’s unlikely to pass, but may shift the conversation.

Brooks said she’s “very hopeful” it will advance further this time, because of the situation of the last few years. Over the course of the pandemic, wealth inequality widened at a rapid pace, both internationally and between Americans.

Brooks is also boasting a wider coalition this time. “We have strong support from some of the biggest service sector unions in the city, District Council 33 and District Council 47,” she told Billy Penn. “We have amassed a groundswell of support from movement groups and community advocates who want to see a fully-funded Philadelphia.”

The timing of the bill’s introduction, in the same week when Mayor Jim Kenney submits his budget proposal, is intentional. Wealth tax revenues are envisioned as another well for the city to draw from to fund social services and other programs. For instance, a press release suggested funds from the tax could help provide ​​”full library access seven days a week in neighborhoods across the city.”

Last time, Brooks’ bill was referred to Council’s Committee of Finance and left unaddressed. Councilmember Derek Green, the finance chair, can decide whether to set up hearings once the bill is referred to him after introduction.

So the tax disproportionately affects the rich? How much?

Official numbers from the city aren’t available, but Brooks’ office shared projections by the Pa. Budget and Policy Center.

Those estimates state that “the top 5% of families by income, with incomes of $364,000 or more, would account for about 74% of the revenues raised by the tax.”

The city’s projected total revenue from the tax could range from $150 to $400 million, per Brooks’ office.

And rich people won’t just leave the city?

When new taxes are proposed (or old taxes are reintroduced), there’s always the argument that the fees will drive away wealthy people, decreasing investment in business or straight up moving jobs out of the city.

“This kind of policy will only serve to increase Philadelphia’s already unfortunate reputation for being too highly taxed,” said the business group Inclusive Growth Coalition, according to The Inquirer. “Not only will increasing taxes like this not convince people to stay here, it disincentivizes others from moving and working here.”

Studies demonstrate that higher taxes are rarely the sole reason rich people change their residence. Housing costs, deemed a more telling indicator, have been rising in the Philadelphia area for some time now, but more high-income homeowners have moved into the area in the last decade than middle- or lower-income homeowners.

Brooks is confident the tax will not be an incentive to leave in itself. She uses “fair share” framing — the idea that there’s moral clarity in taxing the unambiguously rich, who can simply afford healthier lives than many of their fellow citymates.

For there to be a vital and vibrant Philadelphia, there will need to be a shift in the status quo, Brooks argues.

“When I first introduced this bill, we were at the beginning of the pandemic, and there was a great deal of uncertainty around what our city’s future would look like, so I think there was some understandable hesitancy around how we should fund our city,” Brooks said. “Now, two years in, it’s never been clearer that our working class communities need deep investments.”

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