Suburbs Have Stake In Philly Tax Battle

If you live in the Philadelphia’s suburbs, you have a big stake in the city's ongoing tax battle. Last year, nonresident workers paid about 20 percent of taxes in the city, just from the wage tax.

Currently, Mayor Michael Nutter, City Council and the School Reform Commission are talking about more taxes that would bail out the city’s schools and save some key programs.

The taxes and fees could add up to an extra $102 million that the city would send directly to Philadelphia schools, which are actually run by the state. But  the funding seems to be in trouble in City Council.

As a suburbanite, you might pay more to park in Philadelphia or pay a surcharge on soda and other sugary drinks.

But that is a small amount compared to what some people who live in Montgomery, Bucks, Chester and Delaware counties pay in wage taxes to Philadelphia – without direct representation.

The biggest source of money for Philadelphia, by far, is its wage tax. If you live or work in Philly, you pay the wage tax. Even if you are a visiting rock star or athlete, you pay the wage tax.

The wage tax is 3.9 percent for city residents and 3.5 percent for nonresidents. It has been lowered in recent years, but it is still a sore point with many commuters.

The current Philadelphia city code calls for the nonresident wage tax to fall to 3.35 percent by July 2014, which is the last date that tax is on the books. (At some point, Council will need to set new tax rates.)

In 2010, Philadelphia took in $1.148 billion annually in wage taxes, and 42.67 percent of that money came from nonresidents, according to Philadelphia’s comprehensive annual report (page 165).

According to the city's quarterly managers ’ report, the wage tax makes up 53.6 percent of all taxes received by the city.

At that rate, nonresidents pay $490 million, in taxes, each year to the city of Philadelphia, which is about 8 percent of all revenue generated by the city government.

Put another way, that $490 million from the suburbs and visiting workers represents about 20 percent of all taxes flowing into Philadelphia.

Two other agencies – SEPTA and the School Reform Commission – have a big presence in Philadelphia but they are run by the state and funded by state taxpayers.

So state taxpayers are kicking more money into Philadelphia through state income taxes, state sales taxes and funding the costs of bond issues.

SEPTA, in particular, gets about $575 million annually in state subsidies, just so it can balance its budget. A healthy portion of SEPTA’s funding comes from state sales-tax revenue. But much of SEPTA’s business activities and ridership are in the city of Philadelphia.

The SRC also gets a lot of state taxpayer funding, and its current budget crisis, in part, stems from state-funding cuts.

To be sure, wage taxes and school funding cuts aren’t unique to Philadelphia. If you live in the suburbs and work there, you probably pay a local wage tax, probably about 1 percent. The suburban schools were hit with the same funding problems as Philadelphia under the new state budget proposed by Gov. Tom Corbett.

But Philadelphia is far more dependent in the generosity of tax-paying commuters, state politicians and tourists than small local suburban towns.

Philadelphia also needs more employers to generate a bigger tax base, but since 2000, progress has been slow in that area.

Back when Mayor John Street was starting his first term, Philadelphia had 46,136 employers. In 2009, under Mayor Nutter, the city had 46,447, a net gain of 311 employers over nine years.

The city has been able to add about $200 million in tax revenue annually from these employers through tax changes and by adding 35 businesses worth between $1 million and $10 million.

But much of the wealth in the past decade has fled to the suburbs, where the nonresident taxpayers live.

In 2009, Montgomery County had a total household income of $22.3 billion, compared with $21.8 billion for the city of Philadelphia. Two decades ago, Philly had $14.7 billion in household income, compared with $11 billion for Montgomery County.

A more telltale sign is the big change in population locally since 1989.

In that 20-year period, Philadelphia lost about 11,000 households while the four suburban counties added 89,000 households and 277,000 people.

Research from the Center City District/Central Philadelphia Development Corp. shows how vital suburban commuters are to Philadelphia.

The group estimates that the suburbs provide 48.5 percent of downtown’s workforce, with 57,835 people from the Philadelphia suburbs and 23,604 people from New Jersey.