THE CASE FOR INCREASING THE GROSS RECEIPTS TAX AND REINSTATING THE PERSONAL PROPERTY TAX

In order to deal with the current budget crisis, a variety of activist groups are asking Council to plug the gaping revenue hole threatening to devastate city services. Among the variety of measures that they propose, two of them would raise local taxes on wealthy individuals and corporations. Below are the details of each of these tax proposals:

1. Double the Rate of the Gross Receipts Tax (GRT). This is a tax on the gross receipts that businesses receive from the sales of goods and services within Philadelphia. It has always had a low rate, with the maximum reaching .0039 in 1995, or $3.90 per every $1,000 of receipts. Since then the rate has been steadily cut and is now set at its all-time low of .001415. If we doubled that rate to .002830 it would still sit well below its historical maximum of .0039. It is not limited to businesses located in the City so a substantial amount of the revenue from the tax comes from outside of Philadelphia.

The GRT as currently structured primarily falls upon very large businesses because the first $100,000 of receipts is exempted from tax. Because over 2/3 of the City’s businesses (50,000 of the City’s approximately 75,000 business taxpayers) bring in less than $100,000, they are entirely free from the tax. Another 10,000 or so would not be taxed if the exemption were raised to $200,000, and no business with less than $1 million of receipts would then pay more than 80% of the new rate. The taxes paid are deductible against federal tax liability, meaning the real rate for most businesses would be even lower.

In recent years we believe the tax has generated around $70 million. If the rate were doubled, it would theoretically bring in another $70 million. However, given economic conditions, the total revenue produced in the next fiscal year would probably be more in the neighborhood of $50 million. If the exemption were raised to $200,000, we believe the higher rate could bring in an estimated $40 million.

2. Re-impose the Personal Property Tax at its last stated rate of .004.  This was a tax on the value of a taxpayer’s stocks and bonds and other types of financial assets. In other words it was a tax on wealth, pure and simple. Taxpayers included both individuals and corporations. The tax was levied for most of the 20th century, but repealed in 1997. We believe it raised approximately $17 million in its last year, with very little to no enforcement against nonpayers. Even the existence of the tax was given minimum publicity. Given the tripling in stock values over the last 25 years, we believe this tax has the potential to raise around $50 million and perhaps much more if previously lax enforcement measures were to be ramped up.

It should be noted that in its former form, this tax was declared unconstitutional because it exempted the value of stock in Pennsylvania companies. That flaw could easily be corrected by simply deleting the exemption. It is unknown how much additional revenue could be raised as a result of that change.