Last week, City Council took an important step to reduce the city’s poverty rate and expand equity when it approved reductions in both the city’s wage tax and business taxes. These reductions, the first in years, are a clear signal that city leadership understands what tax cuts like these really are – investments in the future of the city and its residents – and that it is willing to engage with job creators who want to make Philadelphia businesses competitive again.
To understand why Philadelphia’s investment in job creators is so important, it’s helpful to recall the city before COVID-19. Over the last two decades, Philadelphia has reborn as a vibrant and exciting place to live and work. Its downtown bustled with people day and night, and neighborhoods and commercial corridors across the city boomed with acclaimed dining and entertainment options. The city’s population and economy were growing.
In too many neighborhoods, the city’s prosperity wasn’t being shared equally, and once-vibrant commercial corridors languished while residents lacked work. That’s why, at its core, Philadelphia’s poverty rate – the highest among large cities – is a jobs issue: We don’t have enough people working at jobs that pay good wages. The fact is that businesses in our community that are small to midsize or owned by entrepreneurs of color were hit hardest and disproportionately affected by the pandemic. As it happens, those businesses were already growing at slower rates since our last economic downturn.
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Philadelphia has one of the slowest growing jobs bases in the country and has fewer business establishments per capita than comparable cities. Furthermore, we have one of the lowest per capita rates of businesses owned by color entrepreneurs of any major US city. The combination of slow job growth and low-wage job creation is one of the reasons why so many of our residents live at or near the poverty line.
Studies and surveys over the years, including recent polls by local chambers, indicate that by far the greatest barrier to successful entrepreneurship in Philadelphia is the cost of doing business. We are the only major city that double taxes its businesses through a Business Income and Receipts Tax (BIRT). Additionally, Philadelphia has the nation’s highest wage tax and the second-highest collective tax rate on businesses in the country. By reducing both the wage tax, which both employers and workers pay, and the BIRT, which every business pays, City Council is taking an important step toward making Philadelphia a city that rewards and incentivizes working and owning a business. We know the approved reductions in the wage tax and the BIRT will keep more money in workers’ pockets and allow every business to invest in growing and adding jobs.
That’s why the tax cuts backed by the majority of Council members are important – they help every business and every worker. A healthy economy needs a varied economic base, including large anchor companies with a national profile, midsized local firms, and mom-and-pop neighborhood staples. A strong economy creates good opportunities for people with different skills and educational backgrounds. An inclusive economy ensures that no community is left behind such that every race, every gender, every industry, and every neighborhood can participate.
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Philadelphia faced a similar inflection point emerging from the economic downturn of the 1990s. After decades of ever-higher taxes and residents fleeing for the suburbs, then-Mayor Ed Rendell implemented controversial tax cuts that, while small, represented a different way of thinking about the city – one that was hopeful about its ability to compete. Those much-derided tax cuts kicked off an unprecedented recovery for the city that, while far from perfect or complete, was still underway when COVID struck.
After the 2007-2009 recession, Philadelphia city government leaders created new tax initiatives aimed at helping businesses of all sizes, which many saw as a success. According to reports from the Pew Charitable Trusts, as recently as 2019, 67% of city residents agreed with this approach to taxes as a way to inject stability and growth into our local economy.
We know that the last time elected officials got serious about supporting job creators, our city began to thrive. These new reductions are clear signals to business owners and Philadelphians that the city is ready to grow the economy, inspire local entrepreneurs, and attract new companies – and that’s great news for our city’s future.
Regina A. Hairston is president and CEO of the African-American Chamber of Commerce of Pennsylvania, New Jersey and Delaware. Susan Jacobson is chair of the Chamber of Commerce for Greater Philadelphia. They write on behalf of the Inclusive Growth Coalition, a collection of business organizations that advocates for citywide economic growth in Philadelphia.