Progressive Tax District Under Fire in Allentown

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Here’s a little regional economic justice for you all this morning.

Quick backstory: In 2009 and 2011, Harrisburg passed a Neighborhood Improvement Zone to boost development in center city Allentown. The NIZ works by using all state and local taxes collected inside the district, except for real estate taxes, to offer super cheap financing to developers. Once the bonds are paid off, the revenue goes to Harrisburg.

This week, people discovered that “local taxes” also means earned income taxes paid by people who work in Allentown, but live somewhere else (aka the suburbs). Naturally, suburban government officials are incensed.

Here’s my first pass at the issue, but I wanted to respond in depth to some of the anti-NIZ arguments I’m seeing from some Lehigh Valley bloggers:

Bernie O’Hare wants to say that using earned income tax revenue from the suburbs for the NIZ is a “Reverse Robin Hood” policy – a transfer from the poor to the rich. This is incorrect:

The 1st and 2nd Class Townships are richer than Allentown. The townships have most of the region’s earned income tax revenue. That’s how they are able to fund a much larger share of local government with earned income taxes instead of property taxes. Allentown has fewer earned income tax-paying residents, so they have to rely more heavily on regressive property taxes to fund public services.

So the net effect here is going to be a very progressive transfer from wealthier areas to a poorer area. Bernie’s going to have to find something else to dislike about the NIZ, because calling it an upward transfer of wealth is not correct.

LVCI raises some points that aren’t factually wrong, but that I disagree with:

Expand on this idea of “earn it here, keep it here” and Fogelsville, because of it’s industrial park, would become one of the richest local governments in the area. How much money do you think is coming into Allentown from money earned there and in Whitehall with it’s employment of sales associates? How many who live in Allentown actually work in Allentown? Most work outside they city.

What about Cherryville, Laurys Station, Catasauqua and tons of other burgs and villages that have little to no employment opportunities? Places where people commute to somewhere else for their income. Where are they supposed to get their tax revenue from? Yeah I know screw them on property taxes. The farmers, seniors on fixed incomes too?

I’ll just ask again what the justification is supposed to be for your earned income tax revenue returning with you to the municipality where you live. Can anyone explain what the rationale for this practice is supposed to be? I haven’t seen anyone make a full-throated defense of this argument yet and I would like to see one.

“Earn it here, keep it here” makes sense. The business where you work is located in a city. You and all your coworkers travel there to do business, using public roads, parking facilities, water and sewer, electricity infrastructure, broadband, police and fire protection, etc. Why shouldn’t the host city collect the earned income taxes on labor performed in the city to finance these public services? I haven’t heard a real argument against this.

LVCI is saying that if everyone adopted this policy, this would cause some dislocations. Areas who profit under “Earn It There, Bring It Here” would take a loss and areas currently doing poorly would benefit. Fair enough, but I don’t see why that would be a reason not to do it.

Maybe Fogelsville should receive more earned income tax revenue for hosting an Industrial Park. Maybe Whitehall should receive more because of the Mall, but do sales associates even pay much in earned income taxes?

All I know is that, because of the NIZ, Allentown’s going to be getting more high-paying white collar professional jobs, and that EIT revenue should stay in the city. I don’t see what LVCI (and Michael Molovinsky in the comments of a previous post) think they are getting at when they say most people living in Allentown work outside the city.

Which is larger:

a) the amount of EIT revenue produced by Allentown residents in other municipalities
b) the amount of EIT revenue produced in Allentown by residents of other municipalities

Obviously b is larger. That is why a “earn it here, keep it here” policy would be good for Allentown. Areas with higher job density that contribute more to the region’s GDP would benefit, and areas with fewer employers that contribute less to GDP would be worse off.

If you’re in one of the areas that would be worse off under an “earn it here, keep it here” approach to EIT, it’s perfectly sensible to be opposed to the change. That’s basic political economy. But LVCI lives in Allentown, and would personally be better off if Allentown was collecting amount b.

More importantly, the net effect would make the whole Lehigh Valley better off, even if a few individual municipalities were made worse off. If you buy into the “regionalism” agenda that many local public officials cop to, then that’s what matters most. If a policy change would make a few municipalities worse off, that’s less important than if it will make the whole metro region more prosperous and productive overall.

Here’s where I really disagree strongly with LVCI, and where I think he has some misplaced loyalties for someone who cares about inequality. I read this as a full-throated defense of the White Flighter perspective:

I know someone will come up with the idea they consolidate. BULL. No one who lives in these areas are ever going to let that happen. Why should they? Many of these people worked very hard to achieve an education or commute for hours to secure a good job so they can live in a community that suits their needs and lifestyle.

Since when is it being an elitist to study and work hard to want to give yourself & family a better life? Only to be de-incentivized for it.

Everyone needs a goal. Be it people who live in poor neighborhoods and seek higher objectives or someone who is more industrious from the next. To nullify their achievements through consolidation is not what will most benefit this nation. Since the days of cavemen people have always sought after a better standard of living or people like minded as they. If you take that away, you take away their reasons for doing so.

Just like the wealthiest 1% of Americans don’t see themselves as benefitting from government subsidies or a tax and regulatory regime designed to funnel wealth to the top, neither do suburban homeowners see themselves as benefitting from a comprehensive pro-suburban industrial policy at the federal and state level.

But in both cases, they’re wrong. I think people who have done well under the government-structured market and generous subsidies that make suburban homeownership so artificially cheap have a moral responsibility to help sustain the core cities. Maybe LVCI is right that some people see themselves as having worked hard to avoid paying taxes to Allentown, but the question we need to ask is whether the state should be allowing suburbs to sequester their tax revenue from core cities in the first place. I think the hyper-local tax base system is unfair and regressive, and that’s why I support County-wide tax bases.

It’s the same economic justice argument for progressive taxation at the federal level, applied to the regional level. I know that LVCI supports higher taxes on the top 1% of US taxpayers, so it is hard to understand why he doesn’t support more progressive taxation of the 1% of Lehigh Valley taxpayers.

This entry was posted in Budget, Economy, Lehigh Valley, Miscellany.

One Response to Progressive Tax District Under Fire in Allentown

  1. Ed H. says:

    I think the NIZ is a great idea. Without the larger cities like Philadelphia, Pittsburg, Allentown, etc. those neighboring areas don't have much of a tax base at all. When their residents have no jobs to go to, because those larger cities generate the power for the regional economies, directly and indirectly, let's see how they do. Frankly, as a Philadelphia resident, my taxes go to pay for those weenies who moved to the suburbs because they don't have the guys or work ethic to try to make their neighborhoods better.