Bensalem leads efforts against Philly’s “unfair” wage tax system

Bensalem is hosting a public hearing on proposed state legislation that would remove Philadelphia’s broad taxing authority and bring more revenue into municipal economies in Bucks, Chester and Montgomery counties.

The issue is centered on the Sterling Act. Passed in 1932, it was created to be a temporary measure to help Philadelphia bounce back following the Great Depression. It was the first legislation in the state that allowed municipalities to tax the income of residents, but it gave Pittsburgh and Philadelphia authority beyond that.

Originally, the act required those who work in Philadelphia and Pittsburgh and are nonresidents of those cities to pay the taxes to them. It no longer affects Pittsburgh, but those who work in Philadelphia and live elsewhere still pay about 3.5 percent of their incomes to the city, with no return for their home municipalities.

The wage tax is one of Philadelphia’s largest revenue providers, though most government and political leaders in Bucks would say it’s unreasonable to them.

“It’s just totally unfair,” Bensalem Mayor Joe DiGirolamo said. “They need money, of course they do. But they don’t have to take our money. I’m asking for a level playing field.”

According to DiGirolamo, around 5,300 Bensalem residents work in Philadelphia, which leaves $2.5 million in revenue on the table because Bensalem does not have the power to collect 1 percent from these people. DiGirolamo said that if this legislation does go through, he would reduce the millage rate for residents.

The Bensalem mayor has probably been the most outspoken local government leader on the issue. He started a petition that now has over 10,000 signatures to amend the Sterling Act, and now Bensalem is hosting the first hearing on these bills.

Typically, when someone lives in Bensalem and works elsewhere, the income tax is sent back to the home municipality. For example, say someone lives in Middletown Township and works in Northampton making an annual salary of $100,000. Northampton levies an earned income tax of 1 percent and Middletown levies an EIT of 0.5 percent. The person still pays the 1 percent tax, but half of it is sent back to Middletown — $500 in revenue goes to each municipality.

Philadelphia taxes nonresidents but doesn’t send back any money to the home municipality. Now that only 100 or so Pennsylvania municipalities don’t have an earned income tax, local governments and legislators are taking a hard look at how to turn it around.

State Rep. Scott Petri authored two of the bills being discussed during the Oct. 5 public hearing.

One is House Bill 2256. It would amend the Sterling Act and remove Philadelphia’s power of pre-emption on local income taxes, and change it to the way other municipalities, like those in Bucks, handle income tax.

So of the roughly 3.5-percent income tax on nonresidents, Philadelphia would have to send 1 percent back to Bensalem, while keeping the remaining 2.5 percent.

House Bill 2257 is similar in that it would amend the Local Tax Enabling Act to remove the city’s power of pre-emption and allow individuals working in Philadelphia to pay their local tax and receive a credit against the Philadelphia nonresident wage tax.

Montgomery County state Rep. Todd Stephens also authored a bill that will be discussed during the public hearing. House Bill 2142 would also amend the Sterling Act and return taxes to home municipalities.

“As a result of this special treatment, suburban municipalities and school districts are unfairly losing millions of dollars to the City of Philadelphia when their residents work in Philadelphia,” Stephens wrote to his colleagues when introducing the bill in April. “My legislation will level the playing field and require Philadelphia, like nearly every other local government who imposes a tax on earnings, to reimburse the employee’s home, taxing jurisdiction.”

The hearing will be held in the council chambers at Bensalem Municipal Building on Oct. 5 at 10 a.m. It will be attended by DiGirolamo, Petri, Stephens, state Finance Committee Chairman Bernie O’Neill and others.

“We just have to make an effort where people join together,” DiGirolamo said. “I’ll certainly do my part. I’m asking other people to do theirs.”

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