Winners & losers in new budget plan

MAYOR NUTTER and City Council have hailed the compromise budget announced this week as a victory for Philadelphians because residents will be spared from paying higher property taxes.

But how much will residents end up paying under the new budget plan?

The compromise features a temporary five-year 1-penny sales-tax hike. Nutter's original proposal included a three-year sales-tax hike and a substantial two-year property-tax hike.

If you are a homeowner, you'll pay less under the new deal than under the old. For example, according to budget data in the city's five-year financial plan, a family making $50,000 annually, would have paid $1,125 in additional taxes under the old budget proposal, and will instead pay $575 under the new plan.

If you don't own a home, you may pay slightly more. Under the old plan at the $50,000 level you would have paid $345 over three years in additional sales taxes. Now you'll pay $575 over five years.

But experts said that additional property taxes could have been passed on to renters through higher rents, so they could have ended up shouldering a portion of the property-tax hikes.

The sales tax in the city is now 7 cents on each dollar, with 6 cents going to the state and 1 cent to the city. Under the budget plan, the city would get 2 cents, which would yield an estimated $580 million in additional revenue over the next five years.

Unlike the property tax, the sales tax affects both residents and nonresidents. Because the tax base is broader, a smaller tax hike is required to generate enough cash for the city.

Still, is the new tax plan worse for the city's poorest residents?

Studies show that the sales tax is a regressive tax that can be disproportionately hard on the poor, because people with lower incomes spend more of their money on items that end up being taxed.

But because food and clothing are not subject to the sales tax, that lessens the impact for the city's poor residents, said Uri Monson, executive director of the Pennsylvania Intergovernmental Cooperation Authority.

"It's negligibly regressive," Monson said. "Those are the primary-need purchases."

Monson also said that because the sales tax is spread out over purchases instead of paid in one lump sum - like the property tax - it's easier for people to manage and change their spending habits if need be.

"I think psychologically, [because] you don't pay it all at once and you make adjustments, [that] makes it different than property," Monson said. *