Will a Change in Philadelphia’s Real Estate Tax System Save Jobs?

by 08 Oct 2012

A report by Center City District Philadelphia released earlier this year has called for some large changes to be made to Philadelphia's tax system in order to help save jobs. The report has claimed that the current tax system that Philadelphia uses is the main reason that few jobs have been created over the past couple of years. They have argued that a large city, such as Philadelphia simply cannot survive from such a small number of jobs so big changes need to be made, and they need to be made fast.

The current system relies on taxing mobile wages and profits generated in Philadelphia. The report by the Center City District has suggested that the tax system should be reformed to one that taxes based on real-estate. The reason for this is that the current system used isn’t favoured by businesses and there are loopholes that businesses can use to get around such heavy tax. The report also pointed out that other cities, which are surviving much better, are using a real-estate tax system. The report points to the example of New York that receives 41% of their tax revenue from real-estate tax whilst Philadelphia only receives 17%, which is less than half the amount.

Since 1995 Philadelphia has been trying to change their system but have failed pretty badly, this recent report has supplied the energy for big reforms to be made to the tax system of Philadelphia. The main reform being the Actual Value Initiative, which would mean that the values of properties in Philadelphia would be evaluated and the amount of tax would then be calculated using this value. But there is still some debate to whether this is a good idea.

The reason for this is that the current method that is used to assess a property's value is pretty broken. This would have to be changed first and a more effective method would need to be created. Other objections to a tax reform being made come from the fact that the taxes would be revenue-neutral. The issue with this is that amount of tax businesses would be required to pay would be generated regardless of their revenue. What this means is that a business that doesn’t make that much profit, such as a new hotel in Philadelphia or a new restaurant would be affected badly by large taxes and could be forced to shut down. Businesses would be penalized depending on their location, which could actually have an adverse effect and cause greater job losses in Philadelphia.

But the problem is that under the current tax system businesses are able to claim little or no profits at all in Philadelphia avoiding tax. This is the reason that a tax system based on real-estate value seems so appealing. Some council members for example, councilwoman Maria Quiñones Sánchez have argued that there is no need for a completely new tax system as all Philadelphia has to do is fix the current system. This would supply Philadelphia with the much needed revenue and new jobs could be created as a result. However other council members have countered this saying that doing that would be even harder than changing the entire system. There can be no avoiding the fact that both types of tax system have their flaws. If businesses were taxed based on real-estate they could easily just move further away and save themselves a large amount of money. Issues such as these need to be discussed in order to decide on the best tax system.

But which system is the best in terms of maintaining and generating jobs? Some people have argued neither of them, as it isn’t the tax system that is the problem. Others have argued that it is other social issues such as crime and the lack of airport connections that is the cause of the problems. However the people of Philadelphia have known for sometime now that the current system doesn’t work so maybe it is time for reform. I suppose we'll just have to wait and find out.

This guest post is by Endre R., a freelance writer and guest publisher in all things real estate. He currently represents Marriott, provider of the best philadelphia Hotels.


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