'Temporary' taxes often are not

With a weak economy and a budget-busting deficit on the horizon, Philadelphia's mayor and City Council declared they had no choice but to raise taxes.

Don't worry, they said.

It's only temporary, they said.

That was 1939, and the levy in question was the city wage tax. Three generations later, it is still biting into paychecks.

Not long before, in 1936, another allegedly temporary tax had been enacted - a state levy on alcohol to help the Western Pennsylvania city of Johnstown recover from a terrible flood. The waters receded 73 years ago, but the tax lives on.

Not only did both levies achieve immortality, they grew. A lot.

The booze tax debuted at 10 percent; it stands at 18 percent. The wage tax, 1.5 percent to start, is now 3.93 percent for city residents.

So Philadelphians have reason to be skeptical of the tax hikes Mayor Nutter proposed last week: a three-year penny-per-dollar increase in the sales tax and two years of higher property-tax rates. Like the pols of earlier generations, he has said repeatedly that his increases would be temporary to get the city through a crisis.

This time, the Nutter administration assures, the tax hikes really would go away, phased out completely by June 30, 2012.

"We want our taxes to be as low as possible," Finance Director Rob Dubow said. "We have a plan that shows the tax hikes go away, and we're committed to making them go away."

Dubious Philadelphians can perhaps find comfort in two steps this administration is taking that some predecessors did not.

First, the legislation authorizing higher sales and property taxes would include language that would automatically revoke the hikes when their time was up. Council and the legislature, which will have a say on the sales tax, can always extend the increases, but they would have to vote to do so - and endure whatever political pressure taxpayers might bring.

Second, the city annually drafts a financial plan that, by state law, must demonstrate the government's ability to keep the budget balanced for five years. Nutter's new plan shows how the city can do that after the tax hikes are phased out.

"Given Philadelphia's history of 'temporary taxes' becoming permanent, it is fair to question the veracity of that proposal," said Uri Monson, executive director of the Pennsylvania Intergovernmental Cooperation Authority, the state agency that vets the city's five-year plans.

However, he said, Nutter deserves the "benefit of the doubt."

"Good long-term planning allows for the legitimate use of temporary revenue enhancements to meet unexpected shocks to the economy," Monson said.

There is another reason to think Nutter may keep this promise: reelection.

By 2011, when Nutter would be running for his second term, his property-tax hikes are slated to be winding down. A failure to roll the tax back could easily become a major campaign liability.

Nutter's proposed sales-tax increase would not expire until six months after the start of the next mayoral term. But it, too, could easily become a campaign focal point if Nutter shows any signs of softening his pledge to end it.

The same political considerations apply to Council, where several incumbents will likely face stiff challenges.

Administration officials also point to the mayor's record on taxes. Nutter, they note, has committed much of his political career to the cause of lowering taxes - until recently, of course.

"The question people will ask themselves is: 'Do I believe you? What in your past leads me to think the promise you just made is something you truly want to do?' " said Robert Inman, a Wharton School professor and Philadelphia tax expert.

"I look at Mayor Nutter's past record, and he's always been a strong supporter of reducing tax bills," Inman said. "Personally, I think the promise is credible. Will the marketplace think so, too?"

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