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Testimony before the Philadelphia City Council Finance Committee on Wage Tax Relief Legislation (Bill 190746)
November 13, 2019
by Pauline Abernathy, Chief Strategy Officer, Benefits Data Trust
Thank you, Chairperson Blackwell and the members of the Finance Committee for the opportunity to testify in support of Bill 190746 to provide much–needed Wage Tax relief for working Philadelphians with incomes below the poverty line. Sponsored by Councilmembers Domb, Blackwell, and Quiñones-Sánchez, this bill would increase Philadelphia’s current Wage Tax refund beginning next year and would effectively eliminate the Wage Tax entirely for eligible people in future years.
My name is Pauline Abernathy and I am the Chief Strategy Officer of Benefits Data Trust (BDT), a national nonprofit organization headquartered here in Philadelphia with a mission to help people live healthier, more independent lives by creating smarter ways to access essential benefits and services. Since 2005, BDT has screened more than one million households, securing over $7 billion in cumulative benefits and services. This includes helping more than 110,000 Philadelphians secure more than $330 million in benefits to help pay for food, healthcare, housing, childcare, and other basic needs through BenePhilly, a city–wide initiative to combat poverty and increase economic security.
Philadelphia has the highest poverty rate of any big city in the nation. It also has the highest local Wage Tax in the country. Philadelphia’s Wage Tax is particularly pernicious and regressive because it applies to every dollar earned and the rate is the same whether you earn $2,000 or $200,000. We are literally taxing working Philadelphians in and into poverty. In contrast, New York City provides a refundable local Earned Income Tax Credit that supplements the federal and state EITCs and helps lift thousands of New Yorkers out of poverty.
Everyday BDT and our BenePhilly partners hear from Philadelphians struggling to make ends meet despite working one or more jobs. For example, a 43-year-old Brewerytown man is raising three children on his own, including an infant son, while working at a catering company, but he doesn’t earn enough to cover all the bills. He went to a BenePhilly Center for help applying for food and home heating assistance and reported that he earned just under $15,000 last year. This means he paid about $580 in City Wage Taxes. If the proposed bill had been in effect, he would be eligible for a $354 Wage Tax refund. That’s money he could use to feed his children, pay an overdue utility bill, or pay off a credit card.
This is not an isolated case. We estimate that between half and one-third of our working clients would benefit from this bill. BDT believes that this legislation can be a critical tool in the City’s strategy to reduce the number of Philadelphians living in poverty by 2024. In addition, the tax refunds would stimulate the local economy as families that qualify under the bill are likely to spend much of their refund locally.
Low-income residents are currently eligible for a 0.5 percent refund on the City Wage Tax, but very few people receive this refund. Last year only 1,200 tax filers claimed it – less than 2 percent of those receiving the State’s special tax refund (Special Tax Forgiveness). The City and State tax refunds have identical eligibility rules, so why did over 98 percent of Philadelphians who received the state refund not receive the local refund? Because a separate, complicated, paper application is required for the local Wage Tax refund.
BDT’s core business is to develop smarter ways to access benefits and services. We know from experience that the more complicated it is to apply for a benefit, the fewer people will receive it. If you want everyone eligible to receive a benefit and to minimize administrative costs, the best way to do that is to make the benefit automatic by tying it to another benefit or action. That’s what we recommend the City do with this Wage Tax refund. Below are three recommendations.
1) Work with the State to make the process as automatic as possible.
Both the City and the State offer tax refunds to low-income tax filers using the same income cutoffs. Since both programs serve the same people, it makes sense to coordinate them. We have a promising opportunity to “auto enroll” low–income Philadelphia tax filers for the local tax refund when they complete their paperwork for the State tax refund.
The most streamlined option is that the State could simply issue local refunds when a resident claims theState’s special tax refund. The City would then reimburse the State for the total amount of the local tax refunds. This is essentially how New York City’s local refundable Earned Income Tax Credit is administered and is the simplest solution. Alternatively, the City could obtain a list from the State of all Philadelphia residents who qualified for the State’s special tax refund and automatically issue refunds. Under either approach, automating this process would both increase the poverty-fighting impact of the tax refund and reduce the administrative burden on taxpayers and the Philadelphia Department of Revenue.
It is worth noting that City Council in prior sessions has expressed interest in automating the tax refund. Section §19-1508 of the Philadelphia Code – the section that addresses “Refunds and Forgiveness for Poverty Income” – called for a report assessing the feasibility of automatically generating refunds to eligible taxpayers.
2) Simplify the local Wage Tax refund application.
Short of the State administering the local Wage Tax refund, there are low-cost opportunities for the City to greatly simplify the local refund application. Currently, the City tax form asks people to report their wages in six-month increments – January to June and July to December. This is burdensome for people with one job and onerous for those with multiple jobs with variable hours. This would not be necessary if the City applied a single tax rate for the entire calendar year. In addition, there is no need for filers to have to attach a paper copy of their State tax form and their W-2s because the City’s Department of Revenue already checks with the State to confirm the taxpayer qualified for the State’s special tax refund before issuing a local tax refund. Lastly, the form should be available for submission online on a mobile device.
3) Get the word out about local Wage Tax Relief by leveraging tax preparation tools and assistance.
The City can do much more to get the word out about the local Wage Tax refund. First, the City should ensure national companies like Intuit and H&R Block promote and support the local Wage Tax refund in the same way as they do the State’s special tax refund. In addition, community partners like Campaign for Working Families could expand their efforts to help eligible residents claim the local refund. This may require an upgrade to their tax preparation software and possibly additional staff to educate people about the expanded tax refund. Building on theCampaign for Working Families model that includes tax assistance and, at some locations, benefits counseling, this investment would help connect more families to tax credits and public benefits they are currently missing out on.
Thank you again, Chairperson Blackwell, for the opportunity to testify in support of this bill. Philadelphia already has a modest Wage Tax refund on the books. By increasing the value of the refund and improving how it is administered, this legislation will help tens of thousands of Philadelphia families.