Philadelphia City Council is forging ahead to expand an existing tax break for the working poor in defiance of the Kenney administration’s objections.
On Tuesday, the City Council Committee on Finance gave a favorable recommendation to a proposal that would phase out the city’s wage tax for an estimated 60,000 low-income workers and extend the same savings to non-residents.
The proposal would provide average refunds of $41 a month per eligible taxpayer and cost the city $26.5 million annually.
Committee members ignored a request from city Finance Director Rob Dubow to hold the legislation until budget negotiations kickoff after March 5, when Mayor Jim Kenney presents his spending plan.
The proposal now heads to the full City Council, which can take it up on first reading on Thursday.
At-large City Councilman Allan Domb, the main sponsor of the proposal, called the mayor’s veto a “major roadblock for many low-income individuals and families trying to get out of poverty.” The legislation now has 11 co-sponsors.
“We should not be applying this burden on those struggling to get by every day,” he said.
Dubow said the administration supported the proposal to expand the existing refund program, but had concerns over the complexity of the current program’s application process and its low participation rate. The proposal would also divert city funds from Philadelphians to commuters, he warned.
Dubow requested that legislators tack on an evaluation component to the proposal and a sunset provision after two years in order to allow the program to die if it was not successful.
“If something could cost $25 million, I think that belongs in the budget process so that it’s weighed against other options,” Dubow told the committee.
The administration was considering several grant programs for low-income residents in lieu of Domb’s proposal, including housing and community college programs, Dubow said, but he did not provide further details.
“We don’t think that this system has worked very efficiently,” Dubow said about the existing wage tax refund program, “so we do think that another system or something off another existing system may work more efficiently.”
Councilwoman Maria Quiñones-Sánchez said she was uncomfortable with the administration’s transparency and cooperation over the bill.
“It’s just really concerning that, to Councilman Domb’s point, that he’s requested some information and there doesn’t seem to be the willingness to have a transparent conversation with him,” she said.
Domb’s proposal would reduce the city’s wage tax for the working poor who meet certain income requirements — up to $6,500 for an individual and $13,000 for a couple, with each claimed dependent tacking on an additional $9,500 to the income eligibility.
Residents fork over 3.8712% of their income toward the city’s wage tax, and non-residents pay 3.4481%. The wage tax, which is among the highest in the country, rakes in about $2 billion a year to the city’s coffers.
Under the legislation, all low-income workers who qualify for the program — both residents and non-residents — would see their city wage tax shrink to 1.5% starting July 1.
The remaining wage tax is dedicated to the Pennsylvania Intergovernmental Cooperation Authority (PICA), a state board that oversees city finances. When PICA sunsets in 2023, the tax-forgiveness program would draw the city’s wage tax to zero for qualifying taxpayers.
Under the proposal, a refund would return about $68 a month ($816 a year) to a family of four earning $34,250 a year; by 2024, that refund would rise to about $1,300 a year.
An estimated 3% of eligible workers participated in the existing low-income wage tax program in 2019, which refunds 0.5% of the wage tax to eligible low-income workers. That year, the city granted 1,519 petitions for the program, costing the city $115,860.
The proposal to expand the wage tax refund program drew support from anti-poverty advocacy groups.
Pauline Abernathy, chief strategy officer at the nonprofit Benefits Data Trust, said Philadelphia’s wage tax was regressive. Phasing out the wage tax would allow low-income residents to feed their families and pay utility bills, while stimulating the local economy.
“We are literally taxing working Philadelphians in and into poverty,” Abernathy said.
Donovan West, president of the African American Chamber of Commerce of Philadelphia, New Jersey and Delaware, said the wage tax refund was “all about giving back.”
The proposal, he said, “should be added to Philadelphia’s arsenal of initiatives and programs designed to reduce the number of people living in poverty.”