The Brief: The Mayoral Campaign’s Big Tax Reform Idea

One of the biggest ideas in the mayoral race to date was hatched not by any of the candidates, but by Center City Executive Director Paul Levy and Brandywine Realty CEO Jerry Sweeney. It’s really a variation on an old idea—tax reform—but this iteration features some consequential new wrinkles.

At core, this is about reducing wage and business taxes without reducing revenue for City Hall. That basically means shifting the tax burden off of wage and business taxes and onto the property tax, which is the norm in most municipalities. Jeremy Nowak explained the Levy-Sweeney plan well in a recent article for the Philadelphia Citizen. Nowak gets into a lot of stuff, including the flaws in the city’s subsidy-crazed approach to business development (the subsidies are, in many ways, elaborate work arounds the tax structure). But this is the central point:

Of course, when you cut taxes to make a city more competitive new revenue does not appear overnight. But Levy, Sweeney and the other civic leaders have done their homework and figured out how to pay for the inevitable short-term gaps in revenue that come with tax reform. It boils down to this: Raise rates on some things as we lower them on others. Remember tax reform in Philadelphia was never only about lower rates; it’s also about re-balancing the source of revenue.

And how’s this for a surprise: These leaders think parts of the business community – commercial and industrial real estate owners – should take the lead by paying more right off the bat to make up for the shortfall. This is real leadership. We are not used to this. So I suggest we take it seriously.

Instead of asking residential property owners to absorb the deficit that would be created by meaningful and relatively rapid reductions in wage and business taxes, Levy and Sweeney are proposing that owners of commercial and industrial properties pay the bigger real estate tabs (or much of it, at any rate). Given their stature in the business community, it seems plausible their plan would be accepted by many business interests. If homeowners don’t get socked, and businesses are willing to pay more in real estate taxes in the belief that cutting other taxes will goose the city’s economy, well then a lot of political objections to tax reform could conceivably melt away.

And indeed, all of the mayoral candidates I’ve talked to seem fairly receptive to this plan, at least in theory.

Oh, but there’s a huge catch, one that Nowak mentions only fleetingly at the end of his piece. Under Pennsylvania law, the Levy and Sweeney plan is, well, not permitted. Because of the state constitution’s uniformity clause (and the courts’ interpretations of it), Pennsylvania municipalities must tax all properties at the same rate. In other words, City Hall can’t charge commercial property owners three percent a year, and residential property owners just one percent.

Levy and Sweeney are well aware of this, of course. But getting around the uniformity clause will require authorizing legislation in Harrisburg which, if you haven’t already noticed, is rarely easy for Philadelphia to get. That means selling the mayoral candidates, and City Council, on this Big Idea is merely the first step in a long march to restructure Philadelphia’s tax system.

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