Tax credit has fans on Council

Posted: February 27, 2008

City Council signaled yesterday that Mayor Nutter would have a difficult time deep-sixing already approved wage-tax cuts for the working poor to help pay for his proposed business-tax cuts.

At least five Council members said in a budget hearing yesterday that they flat-out opposed or were deeply skeptical of calls to eliminate the so-called David Cohen tax credit, which was championed by the former city councilman, who died two years ago.

"With an acknowledged rate of 25 percent of our citizens in poverty, I'm not satisfied that we're presenting a budget where we are more aggressive on our business-tax cuts," said Councilwoman Maria Qui┬Łones Sanchez.

Cohen's low-income tax credit isn't slated to go into effect until 2013, and its impact on the city's current five-year plan - the subject of yesterday's hearing - is minimal. But after the tax credit has been phased in, it will cost the city about $80.8 million in 2016, and the annual cost will continue to go up.

"It starts to take off and become a very sizable cost," said Steve Agostini, the Nutter administration's budget director. "You know, if folks want to . . . debate that, that's entirely legitimate, but we just want them to understand there's a price tag associated with it."

The administration's view is that its broader plan for wage-tax relief will benefit lower-income residents, in addition to other taxpayers. The city's wage tax was at 4.96 percent when the Cohen tax credit was adopted. Scheduled reductions to the tax rate and statewide casino revenue are expected to lower that rate to 3.11 percent by 2013.

Council members asked whether it would be possible to slow the city's scheduled wage-tax reduction rate in order to fund the tax credit for the working poor. Nutter's representatives acknowledged that was possible.

With the exception of the back-and-forth on the Cohen tax credit, there were few fireworks at yesterday's hearing. Council members raised some concerns about the administration's revenue projections and its level of affordable-housing investment, and asked a few questions about the proposed $4.5 billion pension obligation bond.

Nutter's finance team is far from done with Council, however. Many more hearings are scheduled, including one today dedicated to the city's tax structure. Expect the Cohen tax credit to come up again.

Contact staff writer Patrick Kerkstra at 215-854-2827 or pkerkstra@phillynews.com.

For the latest from City Hall, visit www.HeardInTheHall.com.

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