Why Doesn't Pittsburgh Have A Real Commuter Tax?

Dec 28, 2018

Every day, roughly 300,000 people commute to Pittsburgh for work. They rely on city roads to get there and city police and fire to ensure their safety while they’re here, all of which costs money. But Pittsburgh, unlike Philadelphia, has no commuter tax to defray that burden.

Well, at least not in the strictest sense.

“Pittsburgh sort of has a commuter tax,” said Bill Urbanic, Pittsburgh City Council’s budget director. “There’s a couple different places where we derive funds from folks that either work or visit the city.”

People who work in Pittsburgh pay an annual local services tax of $52. In addition, for-profit employers pay less than 1 percent to the city per person in payroll preparation tax. That’s it, and it doesn’t cover the costs incurred by the city, said Urbanic.

“We’ve looked at different ways to be able to get money from folks that don’t pay in that utilize our services,” he said, but there’s not a lot of room to maneuver; the amounts and rates of the levies Pittsburgh can create is controlled by the state.

When Pittsburgh entered Act 47, Pennsylvania’s rehabilitation program for financially distressed cities, the state allowed the city to pass a payroll expense tax to create a new revenue stream. Officials had to give up a few other taxes to do so, the business privilege tax and the mercantile tax. It was OK, said Urbanic: they’d been enacted in the 1940s and 1960s; there were so many exemptions to the latter that former mayor Tom Murphy referred to it as the “Swiss cheese tax.”

The original proposal for Pittsburgh’s payroll preparation tax would have allowed the city to charge employers — for-profit and nonprofit alike — .0077 per employee, said Urbanic. But the legislation got changed at the last minute. So the city misses a lot of potential revenue, he said.

“We need to be able to influx more money into the system.”

However, it’s not a given that a commuter tax is a good idea, said David Thornburgh, president and CEO of the Committee of Seventy, a government reform advocacy group in Philadelphia. That city taxes commuters’ wages at nearly 3.5 percent.

“I’m firmly convinced that the commuter tax, and there’s a lot of research to demonstrate this, has had a really negative effect on job creation in the city of Philadelphia,” he said.

Jobs are far more mobile today than they were when Depression-era Philadelphia was allowed to create a wage tax to drum up revenue, said Thornburgh, referencing the Sterling Act of 1932. The city was the first in the country to have a local wage tax.

“The idea was that Philadelphia was a major employment center and there were a lot of people who depended on the city for their jobs,” he said. “It was supposed to be a temporary tax.”

Thornburgh said people figure out pretty quickly that working in Philadelphia is far more expensive than not working in Philadelphia, and area offers a lot of other places to work.

“People are very aware of the pocketbook impact that local taxes have on them,” he said.

For Pittsburgh, Thornburgh counseled restraint and referenced the first law of tax policy: “If you want less of something, tax it at a higher rate.”

That said, there is no perfect way to levy taxes, said Thornburgh, and noted that a greater percentage of non-residents depend on Pittsburgh for work (66 percent) than non-residents in the Philadelphia region (36 percent).