The Good Economist August 2016 - Page 2

Better Evaluation, Better Outcomes

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A new Pew Charitable Trusts study points out that Philadelphia fails to conduct a comprehensive analysis of tax incentives. This absence of evaluation and outcome data means there is little evidence that the more than $200 million in forgone annual revenue is translating into an expanded tax base. Better evaluation of economic development spending is key to developing policies that truly result in business growth and job creation.

Philadelphia’s tax structure has long been regarded as a hindrance to economic competitiveness. Philadelphia's 2015 tax rate of 6.41 percent was third-highest behind New York and Washington, and when combined with state corporate income taxes, business profits in Philadelphia were taxed at the highest rate among the 30 cities. Philadelphia is also the only one of the nation's 30 largest cities to impose levies on business profits and revenues.

In response, policymakers have created a hodgepodge of tax incentives and exemptions to ease the tax burden and encourage businesses to locate here. The city currently has 21 business tax reduction programs, the most among the nation's 30 largest cities.

The main problem is these huge incentives, which are aimed at the purpose of job creation, have become a retention mechanism for a corporation that threatens to leave. Larger companies actually receive the dominant share of economic development incentives awards. Between 2010 and 2014, large companies captured 89 percent of the $49.7 million awarded by the Pennsylvania Job Creation Tax Credit. Rewarding big businesses that will leave after their incentive is finished is not the authentic investment our communities need.

We need investment that ensures more Philadelphians have stable jobs, earn decent wages, and have access to the benefits they need to keep their families healthy and economically secure. We must foster a business culture that says “if we are striving for business and job creation in the city, we are seeking to create good jobs and better companies-- those don’t just have an economic impact, but a broader social one, too.”

It is widely acknowledged that local, small businesses are the primary driver of employment growth in the region. Small businesses form the backbone of Philadelphia’s economy and create jobs at a faster pace than larger companies.

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From the SBN Policy Desk: