PPC outreach and partnerships director Jeff Garis presented this testimony written by PPC Executive Director Marc Stier to the Philadelphia Tax Reform Commission public hearing on January 9, 2025. The testimony is an overview of a forthcoming paper written by Stier.
Members of the Commission,
My name is Jeff Garis and I’m the outreach and partnerships director of the Pennsylvania Policy Center. I’m here today to present testimony written by Marc Stier, the executive director of the Pennsylvania Policy Center and senior consultant to the Advisory Committee to the Tax Reform Commission. Dr. Stier could not be here today.
My testimony today is a preview of an in-depth paper we will be releasing in about two weeks titled “Philadelphia Needs to Create Jobs and Reduce Poverty: Business Tax Cuts Won’t Do It.” This paper gives an overview of job growth, poverty, and taxes in Philadelphia and explains in detail why substantial business tax cuts are the not best way for our city to create more jobs and reduce poverty.
Before I turn to the key points in this paper, I want to make a remark about the current political context in which the city will have to make budget and tax decisions. Marc Stier could not be here today because he is speaking at an event in Luzerne County about the coming threat of Donald Trump and the Republicans enacting deep cuts to Medicaid and to the Supplemental Nutrition Assistance Program (SNAP), which helps low-income individuals pay for food. They plan to implement these cuts in order to pay for $5 trillion to $7 trillion in tax breaks for billionaires and wealthy corporations. It is possible that hundreds of thousands of adults and children living in Philadelphia will lose access to SNAP and Medicaid. This will not only create distress for those directly affected but will also cause deep financial losses for our health centers. City agencies will be stretched to make up for some of these cuts and will have to deal with the pain and suffering of our families and children that the cuts will cause. That will be especially difficult because we also anticipate deep cuts to federal programs that provide funds directly to the city.
So, this is not the time to propose deep cuts to any taxes.
Now, I’m going to quickly summarize the central ideas of our forthcoming paper, which challenge the conventional narrative about taxes and the economy.
The paper provides evidence in support of seven claims:
First, Philadelphia is not a job creation basket case. 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 in most of those cities since we entered the 21st century.
Second, it was not high business taxes that explain Philadelphia’s loss of jobs in the last quarter of the 20th century. Philadelphia’s job losses were a product of the national shifts in manufacturing from the Northeast and Midwest to the South and the Southwest, which was later in Philadelphia than other cities in these regions. Once Philadelphia’s decline in manufacturing jobs ended around the year 2000, the qualities that make our city an attractive place for business came to the forefront and we have faster job growth than other cities in these regions.
Third, taxes 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 taxes on those with high incomes—the people that supporters of lower business taxes seek to recruit to the city—are lower than in other cities.
Fourth, slow job creation is not the cause of Philadelphia’s high poverty rates. The best evidence we have is that entrenched poverty, especially in the Black community, was created and sustained by public policies that created a highly segregated city. Both Black and white people with low incomes in Philadelphia are cut off in various ways from the dynamic sector of our economy, not least because they don’t receive an adequate education.
Fifth, substantial reductions to business taxes would be enormously costly to city revenues and would not create many jobs or reduce poverty. In fact, we estimate that a cut in the net income portion of the Business Income & Receipts Tax (BIRT) would cost the city more than $3 billion over ten years and would create only 50,000 new jobs in Philadelphia beyond the 200,000 jobs we expect the city will generate without any tax changes. And more than 80% of the newly created jobs would go to people moving into the city, not to current Philadelphians. So, business tax reduction is an extremely inefficient path to reducing poverty and creating jobs for current Philadelphians.
Sixth, cutting business taxes would shift the task of generating revenue to property taxes. However, Philadelphia benefits from relying more heavily on business taxes than property taxes to fund its operations. Our low property taxes create incentives for the housing development that has brought new people into the city. New businesses do not make a profit for a few years but do have to pay property taxes. So our current reliance on business taxes rather than property taxes encourages small business, including manufacturing, to locate and create jobs in the city. 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.
Seventh and finally, 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 huge improvements in public education, these strategies include workforce training that connects low-income Philadelphians to existing jobs; investments in commercial corridor improvements; providing low-cost capital to business startups, especially those owned by Black people and women; and creating tax breaks for the conversion of Center City commercial buildings to residences that include affordable housing units. Three billion dollars spent over ten years to support these programs would create tens of thousands of jobs, reduce poverty, and make our city safer and more attractive for everyone—current Philadelphians as well as newcomers.
Thank you for taking my testimony today.