One of the oddest things that’s emerged from the Philadelphia school funding package worked out in Harrisburg in June is that it locks in a significantly higher sales tax in Philadelphia than the suburbs, and it seems hardly anyone has noticed.
A quick history: For years, the city and suburbs had the same sales tax—6 percent, all of it going to the state. When Philadelphia got into financial trouble 20 years ago, a penny for the city was added, making its sales tax a total of 7 percent.
The mayor and council added another “temporary” 1 percent in 2009 when the recession made things tight. It was supposed to expire next June. But now the school funding plan would make that increase permanent, meaning the sales tax will stay at 8 percent in the city, 2 percent higher than in the suburbs.
When Mayor Nutter dropped by WHYY for an interview Friday, I asked if he thought there would be any impact on the city’s economy. His answer: nope.
“I think at this point in time, folks have pretty much gotten used to that,” he said. “I don’t know that we have any demonstrable impact. I don’t know that there’s anyone running around trying to evade the city sales tax.”
You can make the differential sound like a little or a lot. On a $4 pack of smokes, you’ll pay eight cents more if you buy at a Wawa in the city.
On the other hand, an 8 percent sales tax is 33 percent higher than a 6 percent tax. Which is a lot.
I didn’t think the issue was whether people would drive to the suburbs to save sales tax on small purchases, but whether a company like Best Buy or Ikea would consider locating another store in Philadelphia if everybody would be paying 2 percent more for their purchases there than suburban stores.
Nutter dismissed the notion, saying plenty of stores are planning to come to East Market Street.
If the business community in town disagrees, you wouldn’t know it.
I checked, and when the “temporary” sales tax was enacted in 2009, then Chamber of Commerce CEO Mark Schweiker called it a “woeful development,” though he didn’t lobby against it in Harrisburg (all sales tax changes tax require state legislation).
This time, the Chamber of Commerce seems to be quietly supportive. An op-ed piece on school funding co-authored by current chamber President Rob Wonderling mentioned the sales tax hike without a hint of opposition.
A recent piece by Center City District President Paul Levy and Brookings Institution Senior Fellow Jeremy Nowak raised concerns about the effect of city’s heavy tax burden on job creation, though it emphasized wage and business taxes and cited recent increases in the parking, real estate and use and occupancy tax.
Maybe a sales tax increase doesn’t matter. But I’d feel better if I thought we were taking a good look at it and consulting some economists before jumping on board.
Wharton School professor Robert Inman, who’s studied the impact of city tax policies for years told the Inquirer in June that the effect of the sales tax increase “is not going to be zero,” but that it would take time to conduct a credible analysis.
City Council will have to vote on the issue at some point. Maybe we’ll learn more then.