Pew: Tax gap between Philly, suburbs shrinking

For decades, when it came to luring and keeping residents, most of Philadelphia's suburban communities offered residents and newcomers a major advantage: less-burdensome taxes.

But now, according to a study released Wednesday, that suburban benefit has been shrinking on both sides of the river.

Based on an analysis by the Pew Charitable Trusts, the local tax gap between Philadelphia and its suburbs dropped in 2015 to its lowest level in 15 years - in some cases making the city's overall tax bill lower than that of surrounding towns.

But not all of them.

Overall, the study found, Philadelphia's average tax burden - defined as the percentage of gross income a family would owe in state and local income, sales, and property taxes - was lower for the first time in 2015 than the tax burdens for Delaware, Camden, and Gloucester Counties in terms of countywide averages.

Still, it remained higher than those of Bucks, Chester, Montgomery, Burlington, and Salem Counties. On the municipal level, when it came to heavy tax burdens, Philadelphia remained in the top 30 percent among the 355 municipalities in the study.

The easing of Philadelphia's tax rate - against rising rates in some of the suburbs - could signal a changing landscape for the region, experts said Wednesday. Once viewed as a cheaper alternative to Philadelphia with better school systems, the suburbs of Pennsylvania and New Jersey could lose out in the future, experts said, to residents and newcomers who are attracted to city life but for years were repelled by the tax burden.

"This is good news for the city," said Steve Wray, executive director of the Economy League of Greater Philadelphia. "If you narrow the tax differential, it's a decision that is allowed to be about your lifestyle choice as opposed to purely financial."

To evaluate the region, the Pew researchers constructed a hypothetical middle-class family making $62,000 in 2015.

What they found: A family with a home in Philadelphia spent 12.4 percent of its income in 2015 on local property tax, state, and local sales taxes, and state and local income taxes.

By comparison, that same family living and working in the Pennsylvania and New Jersey suburbs spent 11.8 percent of its income on taxes.

The differential between the two - 0.6 of a percentage point - represents a significant narrowing of the tax burden in 15 years. In 2000, Philadelphia's tax burden was 3.7 percentage points higher than the surrounding suburbs - a difference of more than $2,000, adjusted for inflation.

So why did the gap diminish so much? One reason, Pew researchers said, was a declining real estate tax burden in the city.

Part of that, the study said, was the introduction of Philadelphia's homestead exemption in 2013, which allowed homeowners to reduce the taxable portion of their property assessment by $30,000.

Robust commercial development in the city, too, has added to Philadelphia's tax base, taking pressure off of homeowners.

Meanwhile, property tax rates and income tax rates have risen in the suburbs, the study found.

"Some of the faster-growing suburban communities have matured; they have added services," Wray said. "Now you have the big recreation center in some of them, you have water and sewage - those cost money."

The study did have limitations, however.

The Pew study did not take into account taxes and fees beyond income, real estate, and sales levies. It made no attempt to capture attitudes toward municipal services, safety, or the quality of public schools.

Nor were the calculations perfect. The overall county tax rates were based on the unweighted average rates for all the towns within the county. In Delaware County, for example, Upper Darby, population about 83,000, counted the same as Millbourne, about 1,200.

While New Jersey publishes extensive data on effective tax rates, Pennsylvania's is wanting.

"We did the best we could, and I believe we did a good job," said Thomas Ginsberg, author of the study.

An interactive tax-comparison graphic may be found by clicking here:

cmccabe@philly.com

610-313-8113@mccabe_caitlin