When we discuss the tax structure of Philadelphia, we’re talking about many layers of historical policies, oddities, and differing agendas that have led to our current form.
Philadelphia levies multiple taxes that make up its $5.6 billion budget, including the Business Tax, Sales Tax, and the Beverage Tax. However, the two largest taxes that make up the city’s operating budget are the Property Tax and the Wage Tax.
The city takes 45% of the property tax for its operating budget, while the school district receives the other 55%. Property taxes are a common tax that most, if not all, municipalities use to generate revenue. However, Philadelphia handles property taxes differently than almost every other municipality in the commonwealth.
When properties are reassessed, which, to much chagrin, happened here in Philadelphia last May, most other Pennsylvania municipalities will lower the property tax rate so that residents do not see an increase. That is not happening here, leading to, on average, a 31% increase for residents.
The much-maligned Wage Tax is a little more unique to Philadelphia and is a volatile tax based on how many people work in the city. If the economy suffers and jobs are cut, so is the revenue from the wage tax. We saw this during the pandemic.
So why is Philadelphia so reliant on a tax that is subject to the whims of the economy? One of the common answers for this is a clause in the state constitution that requires all taxes to be “uniform.” This includes property taxes, which means commercial and residential property are taxed at the same rate.
Why does this cause such an issue in taxation? Most other cities can assess a different taxation rate on commercial properties, the owners of which are more likely to afford a slightly higher rate. This allows residential owners to pay a lesser rate, making it easier for them to stay in their homes.
Philadelphia has tried to mitigate the financial issues caused by the uniformity clause by providing homeowners tax reduction programs such as the Homestead Exemption and the LOOP program while also imposing a use and occupancy tax on commercial businesses. However, the uniformity clause still creates roadblocks regarding local revenue.
As Larry Eichel, a senior researcher for the Pew Charitable Trusts told Hall Monitor, 47 states have a uniformity clause in their constitutions, but 44 choose to interpret it differently. We also spoke with other experts who will explain how this clause affects our local economy and why it isn’t likely to change anytime soon.
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