As a solution to Philadelphia’s financial woes, a necessary five-year sales tax increase has been implemented by the Nutter administration, despite objections.
On Thursday, Oct. 8, the Philadelphia sales tax will go from 7 to 8 cents on the dollar, with 2 cents going to the city and 6 cents to the state. The increase, which Mayor Michael Nutter said is set to expire after five years, is expected to bring in $580 million and will prove to be an essential move to stifle an ever-mounting debt.
Al Schmidt, a city controller candidate, said the mayor betrayed the public’s trust, and his carefree spending habits have caught up with him.
“Philadelphia has the highest taxes and the highest debt [of] any other city in the nation,” Schmidt said. “[Nutter] is borrowing more and more money and still saying we don’t have enough. It’s bologna.”
But by raising the sales tax 1 percent, Nutter is proving his reasons are in the interest of Philadelphia’s economic security.
Since the world’s economy started collapsing more than a year ago, cities around the world have struggled to maintain a balanced budget – American cities included, despite financial support from a national stimulus plan. As the impact of the “economic meltdown” smacked Philadelphia, Nutter’s attempt to close the city’s $1.4 billion budget gap became a no-win situation.
If he continued to ignore the mounting deficit and did nothing, Philadelphia would deteriorate into a ruined city. Likewise, if he accepted the budget and tried to fix it, opponents would take advantage of the situation and blame him for Philadelphia’s failing economy.
In late July, Nutter said if state legislators didn’t allow him to raise the city sales tax 1 percent and reform pension plans, he would have to enact what became known as his “doomsday budget,” which included the elimination of more than 3,000 city jobs. But the same libraries, parks and health centers that Nutter warned would close instead remained opened, and citizens began to call Nutter’s Plan C a bluff, doubting his cabinet and withdrawing trust in him as a politician.
“A crisis really has to be extreme for a politician to get the guts to raise taxes,” assistant economics professor J. Tucker Taylor said. “Nobody wants to do that on their watch.”
While naysayers like Schmidt undermined Nutter’s political credibility, the mayor’s decision to bump the city sales tax showed his devotion to Philadelphia. Nutter is doing his best to effectively pull the city out of an increasing deficit, even if it means putting his own reputation on the line.
The slight increase in sales tax will not further increase inflation – that would require a much stronger phenomenon. The sales tax increase acts to progressively provide revenue without diminishing sales or driving people to travel elsewhere to shop.
Compared to other available options – such as increasing property taxes, which would decelerate an already sluggish housing market, increasing wage taxes, which would only affect city workers’ wallets or cause the closing of dozens of public services, which would significantly impact tourists and citizens and possibly deteriorate our city from the outside in – Nutter’s decision to increase the sales tax will create a small elasticity that will only result in a weakening change in shopping behavior but will have a much larger impact on city revenue.
Nutter has approached fiscal matters earnestly to fix Philadelphia, which bears the ninth-highest poverty rate in the country. The city was faced with either increasing the sales tax one percent or anticipating the fatal corrosion of an already crumbling city.
I would choose to maintain public services, and I can only hope others would choose the same. Some cutbacks in city jobs are necessary to stabilize our city’s economy but did not require the solutions Nutter originally offered. What matters, though, is that his threats were effective – especially on the legislators.
Matthew Petrillo can be reached at email@example.com.