THE PHILADELPHIA INCOME TAX: A SOLUTION TO MUNICIPAL FINANCIAL DIFFICULTIES

Abstract

Late in 1939 the City of Philadelphia took a pioneering step in local finance and enacted a tax on earned income. This measure climaxed a decade of financial distress, during which time declining real estate valuations resulted in an average annual loss of $20 million in real estate revenues. To meet the loss, Philadelphia first curtailed expenditures and then turned to unsound fiscal expedients: overestimation of yearly receipts, flotation of loans to meet current expenses, and short-changing of the sinking fund through excessive valuation of sinking fund assets.