Tuesday, November 27, 2001

THE GOOD NEWS ABOUT SAIDEL'S TAX PLAN

By MARK ALAN HUGHES
THE "Tax Structure Analysis Report" issued yesterday by City Controller Jonathan Saidel is the best policy statement from any city government in my 20 years of policy analysis and research.

In fact, about the only negative in the document is that cumbersome name.

It is one of few policy statements to come from someone in Philadelphia government that hasn't made me wince - and I want to show it to colleagues and counterparts everywhere.

I like how smart it is, how honest it is, and how savvy it is in anticipating those who will try to bury it. It doesn't treat the reader like a miserable fool who should shut up and be thankful for the lousy status quo.

In this brief space, let me present three of the many things you should know about the report and what it means for all of us.

First, an analysis like this requires some assumptions: simplifications and judgments needed to run the numbers. The usual game is to use the assumptions to make your argument smell sweeter than it really is.

But Saidel makes assumptions that work against him and make his argument harder to sustain.

For example, Saidel assumes no big changes in city spending. That is, he proposes to fix this mess strictly on the tax side rather than calling for a reduction in city services. That's good politics but demands even more of his tax reforms: Anything he cuts he must make up elsewhere.

Most important, Saidel uses worst-case (rather than rosiest-case) scenarios throughout the report and always requires himself to find 130 percent of what he cuts.

Finally, he's transparent in his assumptions, allowing us to evaluate his judgment calls for ourselves. Sometimes he is provocatively candid, as when he shines the spotlight on the money hidden in the city's budget. This isn't vague "waste, fraud and abuse." This is millions of actual dollars that will never get spent, just sitting in untouched budget lines.

Second point: Many people will focus on the wage-tax reductions and the modest move toward a land-value tax in Saidel's plan. But just as significant are his proposals for reform of business taxes.

Our business privilege tax (on gross receipts and net income) and net profits tax are a mess, making confusing distinctions between businesses with disastrous consequences for our local economy.

Saidel's plan would reduce or eliminate all of the city's major business taxes. However, the bulk of that tax relief would be targeted at firms that do business in the regional and global marketplace. In effect, the controller seeks to make Philadelphia a tax haven for people and businesses that export to the outside world - and import money into the city rather than simply recirculate dollars already here.

They're the firms we must actively attract because they can locate almost anywhere. They're also the firms that can provide a bright future of stable and rewarding jobs for Philadelphians.

Third point: Saidel's plan assumes a modest "supply-side" effect. This means that the controller assumes that cutting taxes will lead fewer people and firms to leave the city and persuade some of each to come or expand here. Of course, that's the main point of cutting taxes, as any economist will tell you.

UNFORTUNATELY, the mayor's so-called Council of Economic Advisers is dominated by people who spend more time at the breakfast buffet than paying attention at briefings on the tax plan.

Get ready to hear all kinds of arguments calling Saidel's plan irresponsible and stating that his tax plan would bust the city budget.

But, in fact, Saidel's plan presents a very safe bet that good things would happen because of tax reform. It is far more irresponsible to continue on the path we're on. Saidel's bold plan is a calculated risk we can't afford not to take. *

Mark Alan Hughes teaches at Penn's Fox Leadership Program and is a weekly contributor to the Daily Views. Contact him and view past articles at www.mahughes.org.

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