PHILADELPHIA—A new analysis by The Pew Charitable Trusts of the state and local tax burden in Philadelphia and its suburbs finds that the tax disadvantage of living in the city has dropped to its lowest point in 15 years, making Philadelphia more affordable in terms of taxes than many surrounding towns.
The brief, “The Shrinking Tax Gap Between Philadelphia and Its Suburbs,” shows that a middle-income family with a home in the city spent 12.4 percent of its income in 2015 on local property tax, state and local sales tax, and state and local income tax. The same family living and working in the suburbs of Pennsylvania and New Jersey had an average tax burden of 11.8 percent, or just 0.6 percentage points less. In 2000, the average gap between the city and suburbs was 3.7 percentage points.
“Pew’s research shows that a middle-income family that would have saved $2,410 in taxes in 2000 by living and working in the suburbs instead of the city would save only $390 in 2015,” said Thomas Ginsberg of Pew’s Philadelphia research initiative. “The tax gap is a useful measure of Philadelphia’s tax competitiveness and can help local officials across the region gauge their tax decisions in relation to other municipalities.”
The new analysis updates Pew’s 2012 report on the topic and shows that the landscape has shifted, mainly because of changes in property taxes. In the city, the biggest factor in narrowing the tax gap was the homestead relief program, enacted in 2013 as part of a property tax overhaul.
Pew’s research found that:
- In 2015, Philadelphia was still more heavily taxed than a large majority of its suburbs, with the 97th-heaviest tax burden out of 355 municipalities studied in nine counties in southeastern Pennsylvania and southern New Jersey.
- Philadelphia’s tax burden shrank the most in comparison with suburbs that have relatively low median household incomes, like the city itself. Among the 100 poorest communities in the area, Philadelphia’s tax burden declined from third-heaviest in 2000 to 59th-heaviest in 2015. In relation to the 100 wealthiest towns, Philadelphia still had a significant tax disadvantage.
- Suburban residents who work in Philadelphia had the worst tax situation. A family earning its income in the city and owning a home in the suburbs instead of Philadelphia saved about $300 in 2000 but lost $1,210 in 2015. (All amounts are inflation-adjusted to 2015 dollars.)
- The most heavily taxed suburb in New Jersey in 2015 was Woodlynne Borough in Camden County. In Pennsylvania, it was Colwyn Borough in Delaware County.
- Lower Alloways Creek Township in Salem County had the lightest tax burden in New Jersey, while Bryn Athyn Borough in Montgomery County had the lightest in Pennsylvania.
The research focused on state and local tax rates in Philadelphia and 354 other municipalities in Bucks, Chester, Delaware, and Montgomery counties in Pennsylvania, and Burlington, Camden, Gloucester, and Salem counties in New Jersey. The analysis is based on rates in effect for 2015-16, 2012-13, and 2000-01.
The analysis includes an online interactive map for readers to compare the tax burden of living and working in the city with living and working in surrounding areas. The map, as well as the full brief and methodology, can be found at pewtrusts.org/philaresearch.
The Pew Charitable Trusts is driven by the power of knowledge to solve today’s most challenging problems. Pew’s Philadelphia research initiative provides timely, impartial research and analysis on key issues facing Philadelphia for the benefit of the city’s residents and leaders. Learn more at pewtrusts.org/philaresearch.
Agenda for America
Resources for federal, state, and local decision-makers
The Shrinking Tax Gap Between Philadelphia and Its Suburbs
Interactive Map: Compare Tax Burdens in the Philly Region
Infographic: Philly Tax Burden
Understanding how it has changed in the city and suburbs