Report suggests new ways for Pittsburgh to levy additional taxes without raising earned income, property taxes

A report prepared by the Pittsburgh Budget and Policy Center has proposed new ways for the city to bring in added revenue without raising property or earned income taxes.

In a presentation unveiling the findings of the report, Stephen Herzenberg, executive director of the Keystone Research Center, said that the solutions he presented “makes clear that Pittsburgh can take action now” to create a “fair tax system.”

The current local tax system, he argued, is unfair because it doesn’t tax unearned income, or “income from wealth,” including money coming from trusts, royalties, patents, capital gains and dividends.

Unearned income, he said, tends to affect predominantly wealthy individuals. When wealthy people don’t pay taxes on unearned income, he said, there’s greater tax burden on low- and middle-income residents.

“Our current taxes are upside-down,” he said. “If we have an unfair income tax, let’s make it fairer.”

Because of a uniformity clause in the state constitution, it’s illegal in Pennsylvania to use a graduated income tax system, one in which wealthier people pay a higher percentage on earned income.

But taxing different types of income, like unearned income, is legal, Herzenberg said.

“There’s significant leeway for the city to tax a much wider range of income than is currently taxed, and it can tax different kinds of income at different rates,” he said.

According to Herzenberg’s data, every 1% taxed on dividends and capital gains would raise $7 million annually in taxes for the city and school district. That means a 3% tax on dividends and capital gains would raise $21 million a year, and a 6% tax on those forms of income would increase local revenue by $57 million annually.

“This is fairer, because right now, we have an income tax that taxes earned income, which means mostly people’s wages,” Herzenberg said. “The money that rich people get isn’t taxed. The income that regular people get is taxed.”

Another option: Make nonprofits pay

Nthando Thandiwe, budget and policy analyst for the Pittsburgh Budget and Policy Center, presented another option — requiring the city’s nonprofits, who are exempted from paying taxes, to contribute their fair share. In a city known for universities and hospitals, he said, requiring such nonprofits to contribute could bring money that “can really transform a city.”

To do that, he recommended a PILOT — or payment in lieu of taxes — system. In that scenario, nonprofits would voluntarily agree to pay a portion of what they would otherwise pay in taxes.

City Councilman Ricky Burgess recently introduced legislation calling for PILOT payments, though the measure has not yet progressed for a preliminary vote.

The city’s hospitals and universities have largely declined to comment on whether they would be willing to participate.

“There’s a path that Pittsburgh can take toward fairer taxation and seek contributions from UPMC and other large anchor institutions in the city,” Thandiwe said. He said UPMC alone would pay about $50 million each year to the city and school district if not for its tax exempt nonprofit status.

PILOT programs have already launched elsewhere in the state, and UPMC participates in such payment programs in Erie, South Fayette, Williamsport and Lock Haven, he said.

If nonprofits declined to participate, Thandiwe suggested taking the matter to court to challenge their tax exempt status.