Bear crisis by resizing, reimagining
November 30, 2008
James R. Waddington Jr. and Steven T. Wray, Philadelphia Inquirer
We are in the midst of the most challenging economic times in recent history. And government isn't insulated from the cascade of economic problems.
The nonexistent credit market threatens payrolls and financing maintenance and infrastructure improvements. Stock market upheaval has increased the amount that governments need to meet pension-fund obligations. Tax revenue is falling short of expectations and projections. What we expected to get isn't coming, and we're going to have to do things differently than we planned.
To cope, in Philadelphia, Mayor Nutter has announced significant steps - cutting jobs and spending, closing libraries and swimming pools, and forgoing or cutting back on fulfilling many of the promises he made when he was elected a year ago.
While many of these initial steps are laudable, we need to accept this economic crisis as an opportunity to rethink how we do things in Philadelphia and in city government. Permanent resizing and reimagining - with an eye toward fulfilling the priorities the mayor detailed in his campaign and first year in office - are what is needed.
Unfortunately, one of the biggest promises the mayor is putting aside is the continuation of the city's program of business- and wage-tax reductions. The mayor has proposed that they be pushed back until 2015 in order to save almost $230 million as part of the city's plan to satisfy the requirements of the state-mandated five-year budget plan.
Although this measure might appear to be sensible, this act of short-term fiscal preservation has the potential to undermine opportunities for growth. The good news is that the city isn't raising taxes. But by committing to a five-year suspension of tax reductions, we risk losing the momentum Philadelphia has gained over the last 15 years in improving its tax competitiveness. Studies by researchers like Bob Inman at Penn have shown that the city's high tax rates have been a contributing factor in its population loss and economic decline.
Steady rate decreases have brought the city's tax burden closer to those of its suburban neighbors. The result? The population decline has slowed, and the value proposition for businesses and residents has risen. The shrinking tax differential has allowed people and businesses to see the tangible and intangible benefits that a city location brings - access to transit, the arts, and other crucial amenities.
The Economy League of Greater Philadelphia urges the mayor and City Council to remember that in the medium to long term, maintaining faith in the city as a partner to business is crucial to the region's growth, so that the city is on better footing when it comes out of the current crisis. Lower taxes on wages and more competitive taxes for businesses are investments in the future tax base - we will lose more revenue than we save if we begin hemorrhaging people and businesses again.
Philadelphia's City Charter and most of the current tax code were written in the 1950s. As a result, the city's governmental structure and tax system were built for a much larger city with a vastly different economy. So here's a proposal:
Use the private-sector task force the mayor has proposed to focus on modernizing and right-sizing city government, and commit to revisiting the tax reduction program annually. If we realize significant savings while not sacrificing quality, we can restart the tax-cutting program and be well-positioned for growth when the economy turns around.
The mayor's campaign slogan is still correct. This is truly a new day in our economy. So let's not retreat; let's use the opportunity to create new ways of providing services and raising necessary revenue. If the mayor applies the same creativity, energy, and hope for the future to this problem that he's shown since taking office, we'll eagerly work with him to find new ways of doing the business of government.
James R. Waddington Jr. is chairman of the Economy Leagueof Greater Philadelphia. Steven T. Wray is executive director of the Economy League.
http://articles.philly.com/2008-11-30/news/25255244_1_tax-burden-tax-revenue-businesses