City Council progressives are pushing back on Mayor Cherelle Parker’s tax cut proposal with a plan of their own

Proponents of major reductions in Philadelphia’s business and wage taxes have been gaining momentum for several years, culminating in Mayor Cherelle L. Parker’s embrace this year of rate cuts in the next city budget.

But City Council’s progressives are sending a message that they are not giving up without a fight.

Councilmember Kendra Brooks and Nicolas O’Rourke, who both represent the progressive Working Families Party, on Wednesday will unveil a three-pronged “People’s Tax Plan” in an effort to change the narrative on tax policy in Philadelphia.

The Inquirer acquired a memo describing the Working Families Party plan, which calls for:

Brooks first introduced a wealth tax in Council’s last term, but it went nowhere. The new version includes tweaks that address criticisms of her initial try, such as excluding retirement accounts and college savings funds. The tax would generate $200 million per year, with 70% coming from the top 5% of earners, according to a Pennsylvania Budget and Policy Center analysis cited in the memo.

“Wealth inequality continues to spiral out of control across the country with billionaires holding even more influence over policymaking decisions,” the memo reads. The wealth tax, it says, would “reduce income inequality and ensure continued and stable revenue.”

The release of the plan coincides with Wednesday’s high-profile Council hearing on Parker’s tax proposal. The mayor wants to cut the wage tax from 3.75% to 3.74% for city residents and 3.44% to 3.43% for people who live outside Philly but commute into the city.

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

For the business income and receipts tax, or BIRT, which has two separate tax rates, Parker is proposing lowering the net income tax on profits from 5.81% to 5.71% next year, and the gross receipts tax on businesses’ total revenue from 0.1415% to 0.1410%. Those cuts would cost the city $9.2 million next year.

Several members, including Council President Kenyatta Johnson, are likely to suggest the city could go even further than Parker has proposed. But Brooks and O’Rourke, along with left-leaning Democratic members Rue Landau and Jamie Gauthier, have already begun questioning why Philly is considering tax cuts at a time when President Donald Trump is threatening to cut off federal funding streams cities rely on.

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

A major complication in this year’s debate over taxes is ongoing litigation over a provision of BIRT that effectively exempts businesses with $100,000 or less in revenue from paying the tax. The Massachusetts-based medical device manufacturer Zoll Medical Corp. has sued the city, claiming that the tax violates the Pennsylvania Constitution’s uniformity clause, which prohibits different classes of taxpayers from being subjected to different tax rates from the same levy.

The administration is convinced the city is going to lose in court, and Parker is begrudgingly making moves for the city to preemptively get rid of the exemption, which would cause major headaches for small businesses and quadruple the number of businesses that have to pay the tax.

City Solicitor Renee Garcia said recent court decisions have made it more likely that the tax break would be deemed unconstitutional. In 2017, the Pennsylvania Supreme Court ruled in Nextel Communications v. the Commonwealth of Pennsylvania that a provision of the state business tax that was structured similarly to the BIRT exclusion violated the uniformity clause.

“When the BIRT exemption was adopted, some case law suggested that an income threshold like the $100,000 exemption would be defensible,” Garcia said in a statement. “In recent years, the Pennsylvania Supreme Court has issued a series of cases that made it very clear the BIRT exemption is at risk. It is in City’s best legal interest to sunset the provision because the law has been clarified.”

» READ MORE: Why a popular tax break that helped Philadelphia’s small businesses may be going away

Brooks and O’Rourke, however, say they do not believe the tax break, which is known as the BIRT exclusion, is a lost cause, and they are proposing that Council double it to $200,000, which would allow thousands more businesses to forgo paying the tax and increase the share of the burden that would fall on the largest firms.

“We do not agree with the current position held by the Mayor that the small business exemption is unconstitutional,” the Working Families Party memo said. “We believe the current litigation should be resolved before we drastically raise taxes on nearly two-thirds of small businesses across the City. Increasing the exemption to $200,000 — rather than eliminating it — ensures that businesses remain competitive while allowing the city to maintain a sustainable revenue stream.”

Although the wealth tax proposal is likely to be a nonstarter for many moderate Democratic Council members, it’s notable that two of the three prongs of the plan from the Working Families Party are effectively tax breaks, indicating Brooks and O’Rourke are trying to find solutions that will be amenable to their more centrist colleagues.

Still, the progressives will have their work cut out for them in city budget negotiations this spring as they seek to persuade their fellow lawmakers.

Johnson last year convened the business-friendly Tax Reform Commission, which issued a report last month calling for the complete elimination of BIRT in eight to 12 years. And on Tuesday, he used the first question asked on the first day of Council’s nine weeks of budget hearings to tee up the administration for a speech touting tax cuts.

“What are we doing as the city,” Johnson asked, “to attract more jobs as it relates to us eliminating poverty through job creation and development?”