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Monday, December 09, 2002

Since 1965, every person with a job in the city has paid an annual $10 occupation tax to the city. A succession of Pittsburgh mayors has tried to get the state Legislature to kick the figure upward. All have failed.

Mayor Tom Murphy doesn't even plan to ask. He's after bigger game. He wants the state to approve a half percent, or 0.5 percent, tax on the payrolls of city employers to fill the city's gaping budget hole.

But now here comes city Councilman Bill Peduto to say he wants a higher occupation tax, too. When I asked him why he thought he could succeed where Mayors Richard Caliguiri and Sophie Masloff had failed, he said he has something they didn't:

"A true financial crisis."

He's right about that. This city is in serious trouble. Employment within the city has remained stable even as its population has plummeted, but a couple of problems have been ignored.

There aren't enough residents left to pay for all the cops and firefighters.

Too many workers in this city toil for employers who are tax-exempt.

Thirty years ago, about 20 percent of the city's resident labor force worked in manufacturing, and 10 percent were in health care and education. Those numbers have long since flipped. Only 6 percent of current city residents work in manufacturing. Some 29 percent work in health care, education and social services. Seventeen of the city's top 24 employers are tax-exempt.

Murphy's payroll tax proposal is designed to get the hospitals, universities and other nonprofit groups to kick in big-time. But one big problem is that this proposal also hits businesses already paying taxes. Murphy has promised to cut other business taxes if the state approves the new tax, but Peduto says there's no money in the mayor's budget to pay for reductions. None.

So Peduto, 38 and the city's youngest council member, will come to the meeting today with a plan he was still working on when I reached him Friday afternoon. He wants the state to approve an occupation tax of one-quarter of 1 percent, or 0.25 percent, on anyone with a job in the city. The city could then use the $30 million this would raise for one purpose only: to cut current taxes by $30 million.

Nearly all those cuts would be in business taxes. Peduto was still crunching the numbers Friday, so he didn't have firm figures, but he is suggesting cuts in the mercantile tax, business privilege tax, institutional tax and the 10 percent tax on booze Murphy just proposed. He'd also eliminate the $10 occupation tax.

"The idea is to spread the hurt out so it doesn't go too deep for any one group or person," he said.

Let's get right to that hurt. Peduto says the average salary around here is roughly $32,000, so his tax would cost that wage earner $80. Spread over the course of a year, that would be about $1.54 a week.

He argues that in 1965, when the $10 occupation tax came in, the average salary in the Pittsburgh metropolitan area was about $3,300. So the occupation tax bite at the outset was almost one-third of 1 percent -- more than what he proposes now.

The trouble is this new tax would come on top of the proposed payroll tax. Peduto's hypothetical worker might be taxed only $80 a year, but his employer would be taxed $160 a year on that same salary. If the employer is tax-exempt, Peduto's tax cuts elsewhere won't help.

The plus side is that Peduto is thinking of ways to limit the hit on small businesses and retailers. And, as he put it, "If it fails, it won't take down any part of the budget. It just means those tax cuts won't be able to happen."

It all makes the head hurt, frankly. The region's center for jobs, health care, culture, recreation and higher education is also one of America's failing cities. Its entire tax structure is based on an outmoded model in which people are supposed to live where they work. And most don't.

So the fate of the city is in the hands of a state averse to change, a state facing similar straits in Philadelphia, Harrisburg, York, McKeesport and Reading. Metropolitan tax systems need an overhaul. Maybe this time we'll see some action, but I wouldn't bet 10 bucks on that.