Arts and culture were and continue to be at the forefront of the Center City renaissance that began with the rejuvenation of the Avenue of the Arts (a.k.a. South Broad Street) under then-Mayor Rendell in the mid-1990s. Despite our status as a faded manufacturing city and former financial center, we continue to be blessed with a world-class orchestra, opera company and Art Museum, in addition to many theaters and festivals exhibiting everything from Broadway plays to Shakespeare to modern dance to avant-garde satires. And, of course, there are our renowned historical and science museums (and smaller chestnuts like the Rosenbach and the Atwater Kent that defy easy categorization) as well as our wonderful zoo. This buoyant concentration of arts and culture stimulated the growth of the Center City restaurant scene that, in turn, has transformed a once-decaying urban center into a magnet for young professionals and affluent empty-nesters, fueling the condo boom of the early and mid-2000s and generating thousands of jobs and millions of dollars in tax revenue.

The proposed arts tax threatens to smother this growth at the original source, and at a time when Philadelphia is already reeling from the worst budget crisis in nearly two decades, a softening of the condo market, and the loss of thousands of jobs in the Great Recession. Arts organizations have already been triply hammered by the recession, since their ticket sales have declined markedly due to households’ loss of disposable income, donations and grants are down, and those organizations fortunate enough to have endowments have seen these endowments shrivel with the collapse in the stock market in late 2008 and early 2009. The arts tax, therefore, comes at the worst possible time. Imposing an 8% sales tax on tickets cannot fail to squelch attendance at concerts and shows, resulting in further layoffs of staff and cutbacks in activities at the Philadelphia Orchestra and other performing arts organizations as well as fewer suburbanites coming into Center City, which, of course, is bad news for the restaurants and bars (and their employees) who rely on the concert and theater crowd.

Even disregarding the beneficial effects of a robust arts community and the unfairness of taxing a sector that is already suffering, as a student of economics I can’t understand why the folks in Harrisburg thought that the arts tax would be such a winner from a revenue generation standpoint, as compared, say, with a tax on Eagles tickets. There is a concept called elasticity of demand which is a huge factor for businesses in deciding whether or not to raise the price of their products (not that government ever felt it needed to run like a business, of course!). Elasticity of demand is the slope of the demand curve — in other words, how much will the quantity demanded of a good or service decrease as the price to the consumer goes up? As a general rule, you want to tax industries with highly inelastic demand (i.e., where demand doesn’t drop off steeply as you raise taxes), since this enables you to raise revenue without killing the industry that is your revenue source. Cigarettes are a good example of a product with a fairly inelastic demand curve. People will pay exorbitant sales taxes to keep feeding their nicotine monkey. On the other hand, if you tax a product with a highly elastic demand curve, you will eliminate tons of jobs while raising little or nothing in the way of tax revenue on the net. In fact, you may even reduce total tax revenue if the wound to the industry and the local economy is so severe that the falloff in individual and business income taxes exceeds the extra money raised in sales taxes.

While I admit I haven’t conducted a scientific study, I have a strong suspicion that the demand curve for orchestra and opera tickets is more elastic than the one for Eagles tickets or tickets for the next Hannah Montana flick (God help us all). As a huge Eagles fan myself, I can tell you that many fans will stop taking their children to the dentist before they give up their Eagles tickets. Indeed, the alacrity with which the tickets sell out each year indicates that the supply is not sufficient to meet existing demand and you could raise the price of tickets further. On the other hand, a recession-wracked couple who already have to spend $50 on parking and a babysitter to come into Center City, not to mention the cost of dinner, may well decide to stay home if the price of their concert tickets goes up another $5 apiece due to Harrisburg’s failure to manage its finances. Bad news for them, bad news for the arts, bad news for Philadelphia — and bad news for Harrisburg, which doesn’t get any additional tax revenue.

As of yesterday (October 1), there was some indication that the arts tax may be scrapped. The House Rules Committee dropped it in their latest revisions to the FY 2010 budget, setting up a fight with Governor Rendell (who should know better) and the State Senate and throwing the fragile state budget compromise into doubt. The next couple of days, therefore, will be critical.

The Greater Philadelphia Cultural Alliance has frantically mounted a counterattack against the arts tax, a shady bit of backroom dealing which wasn’t disclosed until the very last moment. You can find the contact information for your state legislators at their website by clicking here. Now is definitely the time for your elected representatives to hear from you, particularly if you love Philadelphia the way I do and want to keep it prosperous, fresh and cool.