Why Mayor Cherelle Parker is asking Council to approve a tax cut that will take effect in 2038

What will the world look like in 2038?

From current fears of a recession to ongoing wars in Europe and the Middle East, it’s impossible to know how 2025 will shake out, much less the next 13 years.

But if City Council approves Mayor Cherelle L. Parker’s tax proposals this spring, one thing will be decided: Philadelphia in 2038 will eliminate its tax on businesses’ gross sales and reduce its tax on corporate profits from 3.2% to 2.8%.

Parker’s proposed city budget legislation this year includes a bill that not only cuts business tax rates for the next fiscal year, but also bakes in 13 years of annual reductions that would take effect automatically without the mayor or Council having to do anything.

Assuming Parker serves two terms, those cuts would still be kicking in for almost all of her successor’s administration. And the largest business tax cuts included in Parker’s plan would not begin until 2032, when the mayor would be leaving office.

“Businesses want predictability, and legislating tax reductions into the future provides more predictability,” Parker spokesperson Joe Grace said. “This is a pro-growth, jobs-creating agenda — and we stand by it.“

Parker’s proposal to cut the business income and receipts tax over 13 years is just one of several forward-looking measures in her plan for the city budget that takes effect July 1.

Her proposal to cut the wage tax includes a five-year rate-reduction schedule. Her new housing initiative relies on Council allowing the administration to issue $800 million in bonds that Philly taxpayers would likely be paying off until 2047. And Parker also wants Council this year to approve a bill that would increase the share of money that the school district gets from the property tax — starting in 2030.

Parker has said her goal for scheduling future tax cuts is to provide predictability for businesses considering investing in Philadelphia.

“If you ask them what they need, they will tell you more than anything, they need certainty,” Parker said last month in her budget address to Council. “That’s why we’re codifying these historic reductions beyond this five-year plan.”

The steeper cuts are in the second half of the schedule, she added, to coincide with when the city’s underfunded pension system is projected to reach 100% funding in the 2033 fiscal year, freeing up hundreds of millions of dollars in the city budget that now go to shoring up the fund.

“We should take advantage of the fact that, finally, Philadelphia’s pension fund will soon be fully funded, dramatically reducing costs that have saddled us for decades,” Parker said in her address.

But her approach has detractors on both sides of the tax debate. The Chamber of Commerce for Greater Philadelphia and lawmakers friendly with the business lobby are frustrated Parker is postponing the deepest cuts until her successor’s tenure.

”Having a sense of predictability is really important. I just think this is way too conservative and isn’t meeting the moment now," said Chellie Cameron, the chamber’s president and CEO. “If predictability is the goal, making promises that go well beyond when you would be in office isn’t predictable at all.”

Progressives, meanwhile, contend it is inappropriate to make decisions for future elected officials, who would have to approve new legislation to keep tax rates flat.

“The administration also effectively is trying to tie the hands of future mayors and City Council,” Councilmember Kendra Brooks said at a recent budget hearing.

Councilmember Rue Landau said the city should focus on more urgent needs, like shoring up SEPTA and the school district, both of which are facing major shortfalls.

“With so much uncertainty at the federal level right now, it isn’t easy to project what will happen with regards to funding in the next year, much less by 2038,” Landau said in a statement.

» READ MORE: Federal cuts, staffing struggles, homeless services: Philly City Council probes Mayor Parker’s $6.7B budget proposal

Councilmember Isaiah Thomas, who has championed cutting the tax, said he plans to push his colleagues to amend the mayor’s proposal to make steeper reductions sooner.

“Clearly there’s some concern around what our decisions today will have on the future leadership of the city,” he said.

Philadelphia’s business income and receipts tax, called the BIRT, is unusual because it taxes both profits and gross receipts.

Parker’s proposal would cut the levy on net income, or profits, from 5.81% to 5.71% in the next budget year — and to 2.8% by 2038.

Her bill would lower the gross receipts tax from 0.1415% to 0.141% this year, followed by a series of cuts leading to its elimination in 2038.

» READ MORE: What you need to know about the Philly business ‘double tax’ that some city leaders are trying to kill

Stewart Weintraub, a state and local tax attorney who worked in the administrations of former Mayors Frank L. Rizzo and William J. Green III, said Parker’s approach has some precedent. The state has used multiyear tax-cut schedules to reduce business taxes, and the city has done it with the wage tax. Both, at times, opted to pause scheduled rate cuts during emergencies or financial downturns, he said.

“You had the benefit of enacting it into law, so businesses have this certainty — or as much certainty as you can get in tax law — of knowing that the tax rate would be going down,” said Weintraub, who sat on the city’s 2003 Tax Reform Commission, which recommended eliminating the business tax but was ultimately ignored. “To the extent there are economic crises or the benefits of the rate reduction weren’t achieved, there was the ability to freeze it.”

Joseph P. McLaughlin, a retired Temple University professor who served as a lobbyist on behalf of the city under four mayors, applauded Parker’s approach because it will make it more politically uncomfortable for future city officials to abandon the push to dramatically cut the business tax, a long-standing goal for many who believe the levy is a burden on job growth in the city.

“Whoever is going to be in favor of stopping it is going to have to carry the burden of advocating for a tax increase,” McLaughlin said.

Rob Dubow, the administration’s finance director, said the mayor’s primary goal is to send a message to firms leery of establishing roots in Philadelphia.

”It’s our attempt to show our commitment and our attempt to make them feel confident about doing business here," Dubow told Council.