Philly’s City Council will take up the wage tax refund extension Mayor Kenney vetoed

At-large Philadelphia City Councilman Alan Domb (Photo via The Philadelphia Tribune)

By Michael D’Onofrio

PHILADELPHIA — The new Philadelphia City Council and Mayor Jim Kenney are on a crash course over legislation that would expand a program to refund more of the city’s wage tax to low-income residents and non-residents.

When City Council has its first session of the new term on Thursday, at-large Councilman Allan Domb will reintroduce a bill that would eventually phase out the city’s wage tax for low-income workers, costing the city $25 million annually.

“This bill will allow Philadelphians who’ve been struggling to get out of poverty with the opportunity to get back the hard-earned wages that they paid the city in taxes,” Domb said on Tuesday inside the City Council Caucus Room in City Hall.

The legislation is a rebuke to Kenney. Legislators passed the bill unanimously in December, but Kenney pocket vetoed the legislation in the waning hours of 2019, preventing City Council from reconvening to override his veto.

Council President Darrell Clarke supported taking up the bill again, saying he will fast-track the legislation. Also supporting the bill were council members Maria Quiñones-Sánchez and Derek Green.

“We look forward to moving ahead with this very, very important legislation,” the council president said.

Clarke said Domb has the nine votes necessary to get the bill passed in City Council, but he was non-committal about moving to override Kenney if the mayor vetoes the bill a second time. An override requires 12 votes on City Council.

Mike Dunn, a spokesman for Kenney, declined to comment on the legislation because the administration has not received it yet.

In a letter explaining his pocket vetoes last month, Kenney said expanding the wage tax refund program doubles down on a tax credit that is “difficult to administer and accessed by very few taxpayers.”

The administration estimated nearly 51,000 people would be eligible for the refund program, which would average $41 a month per taxpayer. The proposal would require the city’s Department of Revenue to hire two additional employees to process refunds.

The city’s wage tax is 3.8712 percent for residents and 3.4481 percent for non-residents, which raises about $2 billion a year for the city’s general fund.

The proposal would initially reduce the wage tax for all eligible workers to approximately 1.5 percent starting July 1 for tax year 2020.

To qualify for the program, an individual must earn less than $6,501 and a couple less than $13,001; each claimed dependent would tack on an additional $9,500 to the income eligibility. Taxpayers must be enrolled in the state’s low-income tax relief refund program, too.

Under the proposal, a refund would return about $68 a month to a family of four earning $34,250 a year; by 2024, that refund would rise to about $1,300 a year.

That 1.5 percent portion of the wage tax is dedicated to the Pennsylvania Intergovernmental Cooperation Authority (PICA), a state board that oversees city finances. PICA is set to expire in 2023, at which time the tax-forgiveness program would provide a full wage tax refund.

The city’s existing wage tax relief program offers low-income residents a 0.5 percent refund of the wage tax they pay. An estimated 3 percent of eligible workers participated in the low-income wage tax program in 2019. That year, the city granted 1,519 petitions for the program, costing the city $115,860.

Philadelphia foregoes more than $450 million in federal assistance funding because eligible low-income residents do not participate in the programs, including the Earned Income Tax Credit and SNAP program, according to Domb.

The proposal won the support of local advocacy groups.

Ira Goldstein, president of policy solutions at the The Reinvestment Fund, a Philadelphia-based community development financial group, said the proposal makes the city’s wage tax more progressive, incentivizes residents to work, and puts more money in the pockets of low-income workers.

Goldstein called for implementing the proposal with the fewest barriers to participation to ensure more people take part in the program.

“This is a critical financial benefit that would allow the family’s household to become less burdened by the things that they have to pay for,” he said, “leaving more money for additional spending in their communities.”

Monty Wilson, a senior attorney at Community Legal Services, said the working poor are struggling to pay for basic necessities, including property taxes.

“This bill is not the answer to curing all of poverty in Philadelphia,” Wilson said, “but it’s an investment in working families. This is a chance for people who have earned their money to get some of their money back to help themselves.”

Philadelphia remains mired in poverty, with nearly 24.5 percent of residents living at or below the federal poverty line. That amounts to more than 377,000 people living in poverty, of which 116,000 (nearly a third) are children, according to the U.S. Census Bureau’s American Community Survey one-year estimates from 2018.

Hispanic and Latino residents have the highest poverty rate in the city at 38 percent, followed by African Americans at 29 percent, according to census data. Whites have a poverty rate of 14 percent.

Nearly 1 in 5 families in Philadelphia (a group of at least two related people living together) live below the poverty line, according to census data. For Black families, that rate rises to 1 in 4.

Michael D’Onofrio is a reporter for the Philadelphia Tribune, where this story first appeared.