Despite relatively strong economies, many cities are bracing for fiscal challenges in 2025, partly because of revenue dips from new commuting patterns and the expiration of American Rescue Plan Act funds. Consequently, some are revisiting their tax rules.
In Philadelphia, Mayor Cherelle Parker and the City Council agreed in early 2024 to pause previously scheduled incremental rate cuts in the city’s business and personal income taxes and convened a tax reform commission to recommend changes for the new fiscal year. The commission asked The Pew Charitable Trusts for technical assistance.
Pew’s research on Philadelphia’s residential tax burden found that the city’s overall tax structure has been mildly progressive for homeowners, largely because of its relatively generous homestead exemption. However, it is regressive for renters without public subsidy for housing. These renters typically shoulder the cost of taxes in their monthly rent but aren’t eligible for the homestead or other property-related exemptions, which offset the city’s “flat” tax rates and are required by the state constitution.
The high effective tax rate for low-income renters and high wage taxes in general could be mitigated through higher participation in existing tax relief programs. One program reduces the income taxes that low-income earners owe in the city; another provides a rebate on certain housing/tax costs low-income renters pay.
Cities should also regularly revisit tax incentives for businesses. Philadelphia taxes both the net income and gross receipts of businesses through the business income and receipts tax, or BIRT. Although businesses generating less than $100,000 in annual gross receipts are exempt from BIRT, inflation has eroded the exemption’s value, and the $100,000 exemption is likely to be eliminated in fiscal year 2026. Pew suggested exploring ways to determine whether tax programs meet their goals—and pay off for taxpayers.
“As cities throughout the U.S. face shifting economic realities, they’re weighing tax changes that will provide revenues without overburdening residents and businesses,” says Thomas Ginsberg, senior officer of Pew’s Philadelphia research and policy initiative. “Such changes can improve a city’s tax system and provide meaningful value for taxpayers.”
Explore the Issue
People
