Finance

Philadelphians Withhold Billions in Taxes

Philadelphia residents owe the city a backlog of more than $1 billion in unpaid taxes. Now a city official has found a strange place to recover...
by | March 1, 2010

Philadelphia residents owe the city a backlog of more than $1 billion in unpaid taxes. Now a city official has found a strange place to recover some of the money: city workers' paychecks.

City Controller Alan Butkovitz discovered that some city employees had neglected to pay their taxes. Butkovitz's office also unearthed a state law from the 1930s that never had been enforced. The law said if Philadelphia employees owed unpaid taxes, the city could take the money straight out of their paychecks.

That's exactly what Butkovitz is doing. His office compiled a list of more than 800 workers who owed money, mainly for unpaid property taxes. Some workers negotiated payment plans and some were removed from the list after closer inspection. Ultimately that left slightly more than 400 workers on the list.

The city is withholding between 5 and 20 percent of these workers' pay, depending on their income. Most of the employees fit in the 10 to 15 percent range. "The surprise was that a disproportionate number of them were higher earners," Butkovitz says. "The poorer city employees have a much better record of paying their taxes."

As you'd expect, unions haven't exactly been pleased by the concept. Cathy Scott, president of the American Federation of State, County and Municipal Employees District Council 47, gives the Controller's Office credit for being diligent in identifying the right people. Still, she thinks the focus on city workers is misplaced. "It unfairly singles out a very small group of people," Scott says, "who are in the grand scheme of things a very small problem."

Butkovitz expects to collect $1.3 million over five years by withholding pay from workers. City residents owe a total of $1.3 billion in unpaid taxes. Scott thinks that a more equitable way to get at the unpaid tax bill would be to restore jobs that were cut from the city's Department of Revenue, giving the city a larger force to go after tax scofflaws.

Philadelphia is trying to attack that larger tax bill, albeit with a more conciliatory approach. The city will offer an amnesty program later this year, in which residents can settle their unpaid tax bills without reduced interest penalties.

Butkovitz makes no apologies for his aggressive approach to city workers; he thinks Philadelphia has been too lax in collecting taxes for years. He notes that when the IRS pursues tax cheats, the benefit isn't just the money it collects. The IRS also is sending the message to the general public that paying taxes isn't optional. "When a government goes in the opposite direction and says you only have to pay taxes if you really want to," Butkovitz says, "you're going to get a lot of noncompliance."

Josh Goodman
Josh Goodman  |  Former Staff Writer
mailbox@governing.com

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