New Tax Foundation Report Looks at County and City Income Taxes

July 14, 2008

Beginning July 1, 2008, workers in Philadelphia will see a little bit more in their paychecks. That day marks the second reduction within a year in that city’s wage tax imposed on both residential and nonresidential workers in Philadelphia, although it remains the highest in the nation.

The new rates are 3.98% for residents (down from 4.219% in early 2008 and 4.26% in 2007) and (precise to the ten-thousandth digit) 3.5392% for nonresidents (down from 3.7242% in early 2008 and 3.7557% in 2007). Thus, a resident who earns $1,000 a week will keep $124 more per year; a nonresident earning that much will keep an additional $96.

Local income or wage taxes can be a part of a sound tax system, particularly if revenue is used to reduce other taxes that may do more economic harm. Using local income tax revenue to reduce corporate income taxes or property taxes can still produce a friendly tax climate.

However, local-level taxes on wages and income are clustering in areas with poor business tax climates. Philadelphia is one of just six of America’s twenty largest cities by population that impose a city- or county- level tax measured by compensation, be it a tax on wages, earned income, or occupational privilege.

A new Tax Foundation Fiscal Fact reviews city and county taxes on income, wages, and occupational privilege, and makes recommendations for local jurisdictions that have them or are considering them.

Read the Tax Foundation Fiscal Fact. Learn more about state and local tax policy here.


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