There's been a lot of discussion recently in the Philly Threads about the Philadelphia tax code and how it impacts job growth and development. The consensus seems to be that this type of discussion doesn't really belong in the Philadelphia Development threads, but plenty of people are still interested in talking about it, so I'm creating this thread for further discussion on the topic. Just as a reminder, these discussions can get heated, so please try to remember keep the tone civil.
The most recent item that sparked this:
The Philadelphia Growth Coalition contracted Econsult to put together a report on the impact of changing around the balance of taxes on businesses. The full report can be found Here
The PBJ reported on it here
The proposed tax change may very well be beneficial to the city, but the report is clearly suspect for a variety of reasons I'll point out below and raises several red flags. The most glaring problem with this report is that it basically attempts to construct an economic model on mostly reasonable inputs to project city job growth and revenue for the next ten years. It does this for two scenarios: one in which the tax code is left a is, and one in which it is changed to increase property taxes on commercial properties only while decreasing other business taxes. Job growth is projected at 18,000 jobs under the first scenario and 79,000 under the second.
First thing to note: no ranges are given. That's right, they are just giving the expected value with no information about the variability in their modeled results. That right there is laughable and should raise all sorts of red flags. Economic modeling is an imprecise process to put it mildly. Projections for things like the projected rate of national economic growth (which is an input into their model) frequently come with margins of error large enough to make the difference between steady growth and recession. And that's for a one year projection. This is why it's so difficult to predict when recessions will happen (and why economists will frequently not even be able to call a recession even once it has already started.) Remember that national economic growth is one of the INPUTS into the Econsult model. If you think about it for a while, it ought to be a major one, since the national economy has a massive impact on the local one. So why no margin of error? We aren't even told what their predictions for the national economy will be in the next ten years? The fact of the matter is that even if the variables they chose for their model were all the correct ones, there's no way that the data they can make meaningful predictions about the Philadelphia job growth rate that far into the future. The results of this study are meaningless.