TESTIMONY OF AUDREY C. TALLEY, ESQUIRE
CHANCELLOR-ELECT, PHILADELPHIA BAR ASSOCIATION

PHILADELPHIA CITY COUNCIL
MONDAY, APRIL 8, 2002

PHILADELPHIA CITY WAGE TAX

Good morning. I’m Audrey Talley, Chancellor-Elect of the Philadelphia Bar Association, and I appear here today on behalf of the officers, the Board of Governors and the members of the Bar Association. I first want to thank President Verna and all of the members of City Council for giving us the opportunity to testify before you today. The Philadelphia Bar Association has long enjoyed a good relationship with Council and with the city government. We treasure that relationship. We know that this is an issue that sincerely concerns all of us. We know there are strong feelings about this. We respect the views of everyone and we appreciate City Council’s attentiveness to this matter.

For 200 years America’s oldest chartered metropolitan bar association has been proud to be associated with this great city. Our first name is Philadelphia. We love this city and we want to see it grow and prosper. We want to see it thrive and remain competitive. We want to see it attract new businesses and the best and the brightest talent from throughout the United States.

Because of all that, the Philadelphia Bar Association today urges the City of Philadelphia to enact substantial cuts in the Philadelphia Wage Tax in the coming fiscal budget.

The Bar Association is one of the largest associations of professionals in the city. Our 13,000 members represent a substantial and particularly important part of the work force of the city. Moreover, as counselors and advisors, we are in a particularly good position to know the business concerns of the business community in general. And, of course, we are aware of our own business concerns. Thus, we speak for ourselves as a major professional business, and with first hand knowledge of virtually every other business in and around the city.

The top 22 Philadelphia law firms employ about 8,500 people, withhold more than $14 million in wage taxes annually and lease nearly 14 percent of all of the office space in Center City. That’s just the big law firms. Most of the law firms in the city are small and medium-sized. So, you have to multiply those figures and also consider that many of our lawyers are actually operating small businesses.

Studies of the city’s tax structure have time and again shown that the Wage Tax is one of the principal reasons why businesses leave Philadelphia, do not expand here, or never locate here. Most recently, a study by the Pennsylvania Economy League comes to the same conclusion. These studies are confirmed by our own experience with our clients. In our dealings with business clients in the Delaware Valley, we have repeatedly heard businesses express their concerns with the Wage Tax. And the tax drives workers out of the city as well. One study we have shows that a Philadelphia family of four earning $40,000 can save $816 per year by moving out of the city. That’s significant.

We repeat two frequently cited illustrations. First: There are a large number of prosperous and successful businesses located on the west side of City Line Avenue, and very few on the east side. Only, the Wage Tax explains the disparity. Second: In Boston, one of the two largest mutual fund complexes in the world, Fidelity, is located in downtown Boston. Boston has no wage tax. However, one of the other two major mutual fund complexes, Vanguard, is located in Chester County, with its perhaps 8,000 employees. Philadelphia does have a Wage Tax. To us, these examples speak volumes. They are consistent with the repeated findings of the studies and with the experience of our members. Philadelphia competes with suburbs and other locations to attract business, and Philadelphia has been losing the fight for about 50 years, round after round after round.

We believe that a major tax policy objective of the city should be to make a deep and substantial cut in the rate of the Wage and Net Profits Tax. A major cut will affect all taxpayers across the board and we believe will have a substantial positive effect on the city’s economy, stopping the bleeding of jobs to the city and turning the city back into a desirable place to do business.

The change will benefit our members and their clients, associates and employees. As businesses have steadily deserted the city since World War II, there has been less productive work for our members here. There has been less attraction for recent law school graduates to locate here. And there has been more incentive to open suburban or other offices. A recent study by the Economy League showed that a law firm faced an 80% greater increase in taxes if it expanded in Philadelphia as opposed to expanding in the suburbs. Lawyers serve their clients. If the clients leave, the lawyers will tend to follow, particularly if they will save money doing so. We urge City Council to enact a major Wage Tax cut to reverse this downward spiral.

In addition, we recommend that the city correct the over-taxation of professional firms that are organized as partnerships, an inequality that is inherent in the interaction of the Net Profits Tax and Business Privilege Tax. The over-taxation compounds the city-wide problems. It is recognized by all professional observers and is long overdue for correction.