Greece and Philadelphia Prove the Importance of Revenue Collection

By Sam Williford, Associate Consultant

As Greece holds elections this weekend that are chiefly framed around government spending, it is easy to forget about the other part of finance: tax collections. It’s an integral part of learning about finance at Fels, and today’s deal in Philadelphia to raise property taxes and postpone the Actual Value Initiative in Philadelphia highlight that fact.

Getting back to Greece, to showcase the importance of tax collection and revenue generation compared to spending. In a 2011 article from the New Yorker, “According to a remarkable presentation that a member of Greece’s central bank gave last fall, the gap between what Greek taxpayers owed last year and what they paid was about a third of total tax revenue, roughly the size of the country’s budget deficit.” Greece would have no budget problem if it collected all the taxes its citizens owe. This also not to mention the greater government spending Greece has to finance in its efforts to make its citizens pay their share.

Obviously, no country, even the United States, will get 100 percent participation rate (tax evasion was estimated at $290 billion in 2001, according to a 2011 report from the IRS). However, when looking to balance any budget, one cannot simply look at the spending side and ignore revenue, whether it is a government, or even a city such a Philadelphia.
In Philadelphia, “one in five city properties is in tax arrears” according to a tax report referenced by the Philadelphia Inquirer, that is costing the city nearly $500 million per year (and with a budget of about $4 billion, that’s 12.5 percent of current revenue).

Another article from the Philly Post cites $417 million that residents have outright evaded. “There’s really nothing clever going on here,” said Philadelphia tax reformer Brett Mandel in the article. “Sure, you could try the address outside the city scheme, but by and large, Philadelphians just cheat by simply not paying their taxes. It’s not like anyone has shell locations offshore in Wildwood,” he added.

Admittedly in Philadelphia, as in Greece, there are serious problems on the spending side related to pensions and health care for government workers, but the similarities in problems with revenue collection casts a greater glare. While the city is removed from the financial troubles that led to the creation of PICA (an organization that exists to watch the city’s budgeting practices) and has done an admirable job of maintaining core services during the recession and subsequent lackluster recovery, every dollar that goes uncollected is a cost that is borne by honest taxpayers.

While the Syriza parties in Greece are welcome to renounce their debts if they win, they will then have to deal with the collective decision by the Greek populace to renounce their obligations to a tax system many believe is irrefutably broken. It is an important lesson for this involved in public administration at any level and in any country that revenue generation is as important as debt ratios and spending to GDP.