June 3, 2025
By Marc Stier
Sometime at the beginning of the next decade, the City of Philadelphia’s pension fund will be fully funded. As a result, the City will be able to stop making catch-up payments, which are roughly $400 million per year.
The question then is: What should our city do with that money?
Mayor Parker’s answer is to deeply cut part of the business income and receipts tax (BIRT) as the recent Tax Reform Commission (TRC) has recommended.
But the members of the community advisory committee to the TRC and I have another idea that we think is better.
We all know that, despite the great wealth in our city, the share of Philadelphia’s population that lives in poverty is the highest among large US cities. Yet the city does far too little to reduce poverty.
Why should Philadelphia make poverty reduction a priority? For two reasons.
First, poverty in Philadelphia didn’t just happen. It’s a product of federal, state, and city public policies that reek of structural racism. The long history of these policies is well known so I can just summarize.
Black and brown people came North to Philadelphia in the middle of the 20th century to take advantage of our big manufacturing base. But due to racist laws and practices, they were forced to live in segregated neighborhoods. Redlining made it impossible for them to secure mortgages to buy homes, depriving them of the major source of wealth creation. And when federally funded highways and new school buildings led many businesses to leave the city, Black people couldn’t follow the jobs to the suburbs because of racist property covenants and zoning codes that limited low- and moderate-income housing.
As businesses and middle-class white people fled the city, Philadelphia’s tax base was undermined, which led to service cuts, especially for K–12 education, which disproportionately hurt Black and low-income neighborhoods. Urban renewal and highway programs pushed Black people even more into increasingly segregated, low-income neighborhoods that suffered public and private disinvestment. The result is that, even now, young people growing up in these neighborhoods are cut off from the dynamic part of our economy.
While these policies hurt Black people more than white ones, redlining and disinvestment affected low-income white neighborhoods, too. Deep poverty leads to crime that hurts white and Black people. It undermines education for all. It leads to overcrowding in some neighborhoods, which increases housing costs in others. And because we don’t provide a good K–12 education, we can’t take full advantage of our most precious resource—the talents and abilities of our children.
Given this history, reversing the policies that created distressed neighborhoods is both a moral and practical necessity. There are great examples in New York, Pittsburgh, and elsewhere of community reinvestment strategies that have revived neighborhoods. These strategies include providing start-up capital to local businesses, especially those owned by Black people and women; keeping commercial corridors in a good state of repair and keeping them clean and aesthetically appealing; providing worker training for real jobs; and adopting intense anti-violence efforts. We have a good example of these policies working in the Ogontz Avenue revitalization project. But Philadelphia has never adopted these strategies at the scale needed to address poverty in every neighborhood.
Our research shows that cuts to business taxes would not reduce poverty. The Tax Reform Commission vastly overstates the impact of business taxes on job creation. Business tax cuts that would cost the city over $1 billion in revenue over ten years would generate only between 33,000 and 53,000 jobs—those numbers might sound high, but the city is already on a path to create 200,000 jobs in ten years. And most of them would be for upper-middle-class, mostly white people moving into the city. Only 20% of those jobs would go to current Philadelphians.
Reductions to business taxes wouldn’t create many jobs because they really don’t stand in the way of job creation now. Thanks to the $100,000 exemption from the Business Income and Receipts Tax (BIRT), only 30% of businesses operating in Philadelphia pay any tax. (And even if the exemption is declared unconstitutional, there are many constitutional options to keep protecting local small businesses from taxation.)
Business taxes are just a small portion of the costs of doing business in Philadelphia, especially for large, profitable businesses. Our small businesses may need lower taxes to operate profitably. But huge, wealthy corporations, such as Comcast, do not.
With new resources, our city would finally have an opportunity to repair the historical wrongs that created our distressed neighborhoods and ensure that we all live in prosperous, vibrant communities.
Adopting public policies that achieve that goal would be a wonderful legacy for our mayor and City Council.