In 2013, Bensalem Township in Bucks County, Pa. decided to explore implementing a one-percent earned income tax (EIT) for resident and nonresident workers in the municipality. At the time, Bristol Township was the only other municipality in Bucks County to implement an EIT. Bensalem contracted Econsult Solutions, Inc. (ESI) to conduct an analysis of the effects a one-percent EIT would have.
To estimate the potential collections generated by an EIT, ESI employed several methods to find a defensible range for the EIT collections that would be generated by resident and nonresident workers.
Methods used included:
- Census estimating
- Use of Longitudinal Employer-Household Dynamics (LEHD) data
- Researching EIT payments Bensalem residents were already paying to other municipalities
- Researching EIT collections of municipalities similar to Bensalem
ESI’s findings concluded that a one-percent EIT would raise $11.3 million in revenue for Bensalem, but just $3.4 million would be new taxes on Bensalem residents. Thus, Bensalem would receive $11.3 million in fiscal benefit but only bear $3.4 million in new costs.
Furthermore, ESI found that imposing an EIT in Bensalem would have both positive and negative impacts on the township’s economic competitiveness, but, on the balance, the positives would outweigh the negatives.
