June 12, 2025
By Marc Stier
The 2025 Tax Reform Commission (TRC) recently called on the City to eliminate the net income portion of the Business Income and Receipts Tax (BIRT) and to make small cuts to the wage tax. Last week, Mayor Parker endorsed small reductions along these lines.
Following the TRC recommendations, however, would take Philadelphia down the wrong path.
Our organization’s analysis of Philadelphia’s economy and tax structure shows that the TRC report is a flawed anachronism. It repeats the arguments of the 2003 commission, without considering the changes in our economy in twenty years.
First, if we look at the most accurate data, it’s clear that Philadelphia is creating jobs fast. While the city lost more jobs relative to other cities in the Northeast and Midwest in the last quarter of the 20th century, jobs have been increasing in Philadelphia faster than other cities in those regions since the start of the 21st century. And while jobs grew faster in the Philadelphia suburbs in the past, in the last ten years they have grown faster in the city.
Second, Philadelphia’s job loss in the last quarter of the 20th century was not caused by high taxes. It was a product of the national shift in manufacturing from the Northeast and Midwest to the South and the Southwest, which took place later in Philadelphia than other cities. Once Philadelphia’s decline in manufacturing jobs ended, the qualities that make our city an attractive place for business came to the forefront, leading to much faster job growth.
Third, taxes on people in Philadelphia are not much higher than those in other cities in the Northeast and Midwest and are not at all higher than in our suburbs. And because our taxes are regressive, taxes on those with high incomes—the people that supporters of lower business taxes want to recruit to the city—are similar to those in other cities.
Fourth, the BIRT is misunderstood. It does not discourage businesses from locating in the city. The BIRT is not a tax on businesses located in the city. It is a tax on business activity in the city. Businesses located outside the city pay the BIRT on their Philadelphia receipts and income. With the exception of firms that produce intangible services, businesses located inside the city do not pay the BIRT on receipts and income earned outside the city. The city has already enacted a law to fix this one exception, and the state should do so as well.
Fifth, taxes on businesses in the city have already been deeply cut. The $100,000 Gross Receipts exemption—for which the Mayor should either devise a replacement or defend in court—has exempted two-thirds of businesses, mostly small businesses and independent contractors, from paying the BIRT and cut the effective tax rate for the rest by 40%. And the state Corporate Net Income Tax is on a path to a 50% cut by 2031 if not sooner.
Sixth, substantial reductions to business taxes would be enormously costly to city revenues and wouldn’t create many jobs. I estimate that eliminating the net income part of the BIRT would cost the city roughly $1.3 billion over ten years and would create only about 15,000 new jobs in Philadelphia beyond the 222,000 jobs we expect the city will generate without any tax cuts. And those jobs would not reduce poverty since research shows that 80% of the newly created jobs would go to people moving into the city, not to current Philadelphians.
Seventh, cutting business taxes would ultimately lead to increased property taxes. Higher property taxes would harm low- and moderate-income Philadelphians. And they would undermine economic growth. New businesses do not make a profit, but they do have to pay property taxes. Our current reliance on business rather than property taxes encourages small business startups—the main source of new jobs. The fastest growing cities in the United States, Boston and San Francisco, have been moving in the direction of Philadelphia by shifting from property to other taxes.
Eighth, our biggest economic challenge is not job creation but the high level of poverty in the city, which is not only immoral but a major barrier to growth. Entrenched poverty, especially in the Black community, was created and sustained by public policies that created a racially and economically segregated city. Both Black and white people with low incomes live in distressed neighborhoods, cut off from the dynamic sector of our economy.
Ninth, the most efficient way to reduce poverty—and spur economic growth generally—is to adopt targeted poverty reduction strategies that have worked effectively in other cities. Besides better schools, these strategies include workforce training that connects people to unfilled jobs and community development programs that use commercial corridor improvements, enhanced access to low-cost capital to business startups, and related strategies to restore neighborhoods. New York City and Pittsburgh have seen dramatic results from these policies, creating more jobs, reducing poverty, and stimulating growth at a lower cost than tax cuts can accomplish.