Commission recommends overhaul of Philadelphia Tax system.

The Philadelphia Tax Reform Commission has proposed a comprehensive over haul of the city's tax structure with the aim of improving Philadelphia's competitiveness in attracting and retaining residents, businesses, and jobs. The Commission, which was created by a citizen vote, believes reform is necessary for the economic recovery and prosperity of Philadelphia and the surrounding region. Twenty-eight recommendations for reform highlight the Commission's final report, which was released late last year.

"The core of our recommendations is to move relentlessly forward in revising our tax system and reducing particular taxes that have made us uncompetitive as a city," said Commission Chair Edward Schwartz in a news release. "We believe these reductions and reforms undertaken over time will begin to make us more competitive and will begin to help the city redeem and reclaim the population, perhaps, that we have lost."

Citing statistics from a number of sources, the report concludes that Philadelphia's tax rates are too high, that it relies too heavily on business and personal income taxes, and that its property assessments are inaccurate and regressive. Taxes on personal and business income, which are the most likely to drive residents and businesses from the city, account for an unusually large percentage (33 percent and 12 percent, respectively) of total tax revenue compared to other large U.S. cities.

The property tax, which accounts for 40 percent of the tax revenue in U.S. cities with more than 300,000 residents, comprises just 19 percent of Philadelphia's tax revenue. The report suggests that reforming Philadelphia's tax structure will lead to higher property values throughout the city, thus generating additional property tax revenue without raising rates. Before the city can expect to shift the tax mix toward the property tax, it must improve the accuracy and fairness of the assessment system.

The Commission's 28 recommendations rely on an incremental approach to tax reform. The recommendations include the following:

* Continuing a program of significant cuts in wage, earnings, net profits, and school income taxes paid by residents and non-residents. These cuts would be phased in incrementally through fiscal year 2014 to reach a wage tax rate of 3.25 percent for both residents and non-residents.

* Adopting a single-sales factor apportionment tax formula quickly to make it more attractive for businesses to stay in the city and gradually eliminating the business privilege tax.

* Separating the assessment and the appeals functions to improve fairness and accountability with the Board of Revision of Taxes.

The Commission estimates that its recommendations would result in a net revenue loss of $192.4 million to the city's general fund for fiscal years 2004 through 2008, and $142.4 million for 2009. The local economy is expected to adjust to the reforms in such a way that the city's tax base will expand, revenues will increase, and there will be no long-term negative net fiscal impact. The full report is available at www.philadelphiataxreform.org.

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