Candidates battle over how to combat economic slump

With the national economy still struggling to regain its footing, the economic plans of Philadelphia's mayoral candidates have come into sharp focus.

Both Democratic Mayor John Street and Republican challenger Sam Katz have stimulus plans that focus on bringing jobs back into the city.

According to Pennsylvania Economy League Executive Director David Thornburgh, Philadelphia's job market has been "flat" for the past three years.

"Flat puts us right in the middle," he said. "Some cities have continued to grow, and others have lost quite a number of jobs."

However, he added that over the past 12 years, Philadelphia's economy has been leaking jobs.

In response, Street is looking to lower the wage tax to 3.5 percent over the next 10 years.

His tax cut plan, which includes cuts to the business privilege tax as well, would cut more than $500 million in taxes over the next 10 years.

Street would also continue to use the "welcoming committee," characterized by spokesman Mark Nevins as a "quasi-governmental agency... that would continue to reach out and aggressively attract businesses to the city."

Katz's plan, aimed at creating 63,500 new jobs, also calls for a wage tax reduction to 3.5 percent, but much more quickly. Katz's reduction would happen over the next two years.

He would also phase out most of the business privilege tax by 2010, and would borrow $750 million to pay for the tax cuts.

According to Thornburgh, a competitive environment, an effective marketing technique and a base of skilled workers are three necessities that Philadelphia must attain in order to revitalize its economy.

Running a city's economy is very different than running a state or national one, Thornburgh pointed out. In a city, "the tools you have to play with are your tax policy... maybe some targeted incentives that you can offer on a very limited basis, and then the fundamentals of city services," he said.

Analysts conclude that the biggest difference between Street and Katz is which tools they would draw upon more heavily.

The candidates "are both moving in the right direction," said Penn Professor of Finance and Economics Robert Inman. "The issue is less direction than speed of movement. Katz is being more aggressive on tax cuts, Street on neighborhood services."

However, Inman added that both candidates have comparable plans to control spending.

Another similarity is their background in marketing the city. Thornburgh noted that while Street has had experience in this as mayor, Katz helped to better the city's economic image when he ran Greater Philadelphia First.

Though Inman "doesn't see there being an enormous difference" between the two candidates' impact on Philadelphia's short-term economic future, he believed that their focus would be on separate issues.

"My instinct is that there will be more jobs with Katz," he said. "And cleaner neighborhoods with Street."

Inman charged that "bad management of the city's public finances" could account for about half of the 300,000 jobs that Philadelphia has lost over the last quarter century.

The next mayor "has to continue to look for productivity improvements," he said. "Find any inefficiencies in the current government structure, negotiate labor contracts... and take all of the financial savings and invest them in the school system and tax relief."

"Bringing the wage tax down would be a powerful incentive for growth," Thornburgh added. "If you follow that logic, the more the sooner, the better."

In contrast, Street's spokespeople said that Katz's tax cut plan "defies logic."

They took particular issue with the proposed borrowing that would help finance the cuts.

"That proposition alone is a bad idea," Nevins said. "Finance 101 tells you not to borrow money to pay for basic expenses."

However, Katz spokesman Nate Raab noted that the city has borrowed money before, and that the plan has enough flexibility to deal with any fluctuations in predictions.

Both plans would lower the business privilege tax, which is a combination of two separate taxes -- the gross receipts tax and the net income tax -- but Katz's plan would reduce it further and faster.

"Sam wants companies to only be taxed on profits," Raab said, and not before they started becoming solvent. "That way, they won't be taxed to death before they get a chance to put their feet on the ground."

Katz's plan would eliminate the gross receipts tax, and increase the net income tax by a half percent, by 2010.

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