Philadelphia weighs big business tax cuts

Driving the news: The Tax Reform Commission's interim report this week called for eliminating the city's business income and receipts tax (BIRT) over the next 8-12 years and for reducing the wage tax, among other recommendations.

• Although loathed by most, these taxes are king in Philly: They accounted for more than half the city's tax revenues last year.

Context: Lawmakers and business leaders have sought tax reforms for decades, but this is the first time since 2003 that a city tax reform commission has issued a formal report.

Zoom in: The commission calls for shifting the city's dependence on business taxes to real estate, i.e. property taxes.

• Worth noting: Philly now enjoys some of the lowest property taxes in the state.

Reality check: This latest attempt to slash the business taxes is likely to fail, Marc Stier, director of the nonprofit Pennsylvania Policy Center, tells Axios.

• Philly not only lacks existing revenues to fund the business tax cuts, but elected officials would face massive backlash if they tried to hike property taxes, Stier says.
• "It's a bad solution to a non-existent problem," he says. "The city needs that revenue far more than it needs a tax cut."

The other side: Allan Domb, a former city legislator who's on the commission, tells Axios that Philly's existing tax structure is uncompetitive and that investing in the city's economy will spur growth.

• "You have two choices: Keep taxing the same people and raising their rates, or expand the base," he says.

The commission blames Philly's business taxes for hindering business growth and investments, and driving away residents.

• The taxes are higher than similar taxes elsewhere in the region and most other big cities, per the report.
• The commission estimates the tax cuts would create 31,200-93,200 jobs over five years.

How it works: Philly companies pay a nearly 6% tax on their net income and another 0.14% on their gross receipts. But the city exempts the first $100,000 in gross receipts plus corresponding net income, so most businesses don't pay BIRT, per an analysis by Pew in 2024.

• Meanwhile, all Philly workers pay between 3%-4% in wage taxes, whether you live in the city or not.

The fine print: Pennsylvania law limits how Philly can tax businesses and residents, so some changes would need approval from the state Legislature.

• For example, Philly officials can't put in place a millionaire's tax, or tax commercial and residential buildings at different rates.

What to watch: City legislators formed the commission last year. It remains to be seen whether they or Mayor Cherelle Parker take up the commission's recommendations and shake up the city's tax code.

• Parker will deliver her budget proposal on March 13.

The bottom line: "Once we have a proposed budget, we'll see if the City can [cut the taxes] without passing the tax burden on to people who can't afford it," Lauren Cristella, the executive director of the city watchdog Committee of 70, tells Axios.

Editor's note: This story has been corrected to reflect that the BIRT taxes net income (not net profits) and to add information clarifying how a $100,000 exemption works.