On May 6, Karen Eselson Belding sat at the witness table at a City Council budget hearing and told members that her Business Income and Receipts Tax bill had jumped from $1,213 to $14,774 — a twelvefold increase. Jeanine Stewart, a Center City therapist, testified that her total city tax bill went up roughly $8,000, a 60 percent jump. She mentioned, almost as an aside, that she had a tour scheduled for office space in the suburbs that same afternoon.
Paul Peterson made the foundational argument in his 1981 book City Limits: cities cannot tax mobile factors heavily because mobile factors leave. A business, including a therapist office, is a mobile factor. Mark Zandi, the chief economist at Moody’s Analytics, confirmed it for Philadelphia in his 2010 and 2013 City Council testimony. The profitable companies paying the bulk of business taxes, he argued, are precisely the ones most likely to move. Start-ups incubated at the Science Center, Zandi observed, “typically move out to the Route 202 corridor as soon as they start earning money.” Peterson’s theoretical constraint and Zandi’s observed reality are the same phenomenon described from different directions. Together they form what I have called the Peterson-Zandi mobility constraint: cities that tax mobile factors lose them.
This is what a Peterson-Zandi constraint city looks like in real time. Productive rational professionals, therapists, doing the math at the witness table, concluding they are leaving.
The remarkable thing about Philadelphia’s FY27 budget cycle is not that it produced these stories. The remarkable thing is that nothing on the table this spring — from the Mayor, from the moderates, from the progressives — would change them.
The small ball menu
Mayor Parker’s $6.97 billion budget proposal funds new investments partly through a parade of narrow new levies. A $1-per-ride tax on Uber and Lyft, raised from an initial $0.20 mid-cycle when the school district’s deficit grew, will generate roughly $48 million for schools. A 25-cent retail delivery fee will fund pothole repair. A 2 percent hike in the hotel tax, requiring Harrisburg’s approval, would make Philadelphia the highest-taxed hotel market on the East Coast and generate $20 million for homelessness services. A new cell tower land-use tax adds $2.4 million for schools. Extending the city’s 2 percent sales tax to out-of-city online sellers — also needing Harrisburg — would close a remote-seller loophole.
These items are presented as one-time pragmatism. Cumulatively they total roughly $80 million in new narrow-base revenue. The net effect on Philadelphia’s economy is roughly zero, and once tax incidence is properly counted, probably negative.
Looming over all of it is last year’s elimination of the $100,000 BIRT exemption, forced by administrations response to the Zoll Medical lawsuit. That decision is now hitting bills. Therapists, dietitians, gig workers, sole proprietors, and single-member LLCs are testifying at hearings that they cannot survive the new structure. Councilmember Mike Driscoll’s bill to restore the exemption for these classes of businesses is, in effect, fighting backwards. As Driscoll himself put it when he introduced it: “A $50,000 business should not face a $3,200 tax hike. That is not policy. That is displacement.”
He is right. It is displacement. It is also the predictable consequence of a tax structure nobody in this debate is proposing to fundamentally change.
Everyone is playing the same game
Walk through the factions. The Parker administration nicks the immobile — riders, tourists, online buyers, small professional businesses — because it cannot reach the mobile. Moderates like Councilmembers Cindy Bass and Curtis Jones articulate the trap clearly without offering a way out of it. “Council is not included in the decision making,” Bass said, “and yet we bear the brunt of the blame.” Jones added: “What I am not going to do is raise taxes on one hand, cut services on the other and tell them that makes sense.” Both understand the math and the problem, and are describing exactly what will continue to happen, in 2027 and beyond, unless council and the administration actually change the tax structure to increase the size of the pie.
The Working Families Party’s response is the same People’s Tax Plan they ran last year and the year before: a 0.4 percent wealth tax on stocks and bonds, expanded wage tax refunds for low earners, and doubling the BIRT exclusion. Morally serious about who pays. Mechanically identical in logic to what the Mayor is doing — same pie, different knife, more forks. Councilmember Kendra Brooks first introduced a version of the wealth tax in 2022. It has not passed once. The Tax the Rich PHL coalition’s own list names billionaires who already live in Bala Cynwyd.
Nobody in this debate is proposing to grow the base itself.
The Mayor said the quiet part out loud
Defending the rideshare tax in April, Mayor Parker explained why she was taxing rideshare users instead of raising property taxes. “Philadelphia residents cannot afford the kind of property tax increases that suburban districts use to boost education funding.”
That sentence is the Peterson-Zandi mobility constraint speaking in the Mayor’s own voice. She has named the trap. She has not proposed a way out of it. Her response is to tax the people who cannot leave the transaction — the rider already in the Uber, the tourist already at the hotel, the therapist whose practice is in the neighborhood. That is the policy of a city operating inside the constraint, not one trying to escape it.
The damage compounds
Each small-ball move is presented as a discrete fix. Together they are a steady squeeze. The BIRT story is not an isolated tax fight. It is a pipeline of productive professionals being run out of the city, one therapist at a time, each one taking future revenue, future jobs, and future tax base with her. The hotel tax is not $20 million in new revenue. It is a permanent competitive disadvantage during the year Philadelphia is supposed to be open to the world. The Uber tax is not just $48 million for schools. It is a regressive flat levy on the working-class riders who use rideshare precisely because the SEPTA option doesn’t exist for their trip.
Each one makes Philadelphia a marginally worse value proposition for the people and businesses we need to stay.
The Working Families Party plan does not escape this. Stocks and bonds move faster than wages, not slower. Pennsylvania’s uniformity clause already killed an earlier version of this structure. A wealth tax on Philadelphia residents is, by definition, a tax on the residents with the most options about where to live. The framing is appealing. The arithmetic is the same trap Peterson described forty-four years ago.
What growing the pie looks like
There is a different approach. I laid it out in detail in How Philadelphia Can Add $2 Billion to Its Economy Without Spending a Dime. Reduce the wage tax from 3.75 percent to 1.50 percent, bringing Philadelphia within 50 basis points of the regional suburban earned-income-tax norm — the smallest gap in modern history. Eliminate the BIRT net income tax that is right now pushing Karen Eselson Belding’s practice out of the city. Expand the BIRT gross receipts component to 1.83 percent so that every business — including the national retailers and out-of-state firms that sell into Philadelphia’s market of 1.6 million consumers without paying for the privilege — contributes proportionally to market access. Revenue-neutral. Not a tax cut. A tax swap.
Modeled output: roughly $1.5 to $2.5 billion in additional Philadelphia GDP annually. About $1.5 billion returned to Philadelphia wage earners every year. A net reduction of approximately $538 million in the tax burden on Philadelphia-based employers, even after the gross receipts increase. Workers come out ahead at every income level, even assuming businesses pass 100 percent of the gross receipts increase through to consumers.
This addresses the small business crisis, the wage tax mobility problem, the school funding squeeze, and the reserve trajectory at the same time. It does so by changing the structure of taxation, not the level of taxation. The same dollars, collected differently, produce a fundamentally different economy.
The choice
The FY27 budget will pass before June 30. It will probably include some version of the rideshare tax, some version of the hotel tax, some Driscoll BIRT relief, and a Brooks wealth tax that goes nowhere. The Mayor will call it bold. The progressives will call it not bold enough. Both will be right about the other, and both will be wrong in the same way. The size of the cuts and increases is not the point. The structure is the point.
As I wrote in There Is a Leak in the Rainy Day Fund, Philadelphia’s reserves drain in the middle years of the five-year plan. Federal funding is unstable enough that the city carries a $91 million federal contingency reserve. The school district faces a $300 million deficit. Each year that the answer is another dollar on Uber rides, another regressive fee, another defensive BIRT bill, the structural problem grows and another therapist tours office space in the suburbs.
The tax swap has been on the shelf since the 2003 Tax Reform Commission and has been actively proposed since 2009 in council at various times. Most of it has been modeled by Econsult. It is revenue-neutral, legal under existing authority, and growth-positive in every credible scenario. The question is not whether Philadelphia can afford structural reform. The question is whether City Hall is willing to think bigger than $1 paper cuts.
Bill Green is a former Philadelphia City Councilmember At-Large and former chair of the School Reform Commission.
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