Don’t Turn Over IRS Debt Collections to Private Contractors

By :: May 22nd, 2014

The latest example of why bipartisanship is not necessarily good: A bill proposed by senators Chuck Schumer (D-NY) and Pat Roberts (R-KN) to require the IRS to hire private debt collectors. The last time Congress made the IRS try this, the agency lost money. It was a terrible idea then and it is a terrible idea now.

Schumer and Roberts slipped the plan into the (now-stalled) Senate version of a measure aimed at restoring 50+ tax breaks that expired last December. A big reason it found its way into the bill: The congressional Joint Committee on Taxation reported it would generate $2.4 billion in extra revenue over 10 years.

As it happens, this is JCT’s estimate of the gross amount of new revenue the debt collectors would bring in. But after figuring administrative and other costs, the plan would likely end up in the red. When Congress forced the IRS to try this from 2006-2009, the net return on the investment was negative $17 million.

The idea has generated massive opposition from those who understand the tax collections business. IRS Commissioner John Koskinen panned it. So did Nina Olson, the agency’s taxpayer advocate. And on Tuesday, the independent IRS Oversight Board weighed in. The panel was nothing if not refreshingly candid:

The Board believes resurrecting and expanding the unfunded Private Debt Collection concept is a bad idea. The experiment has failed twice and there is nothing to lead us to believe it will not fail again. If Congress wishes to collect more tax revenue to shrink the budget deficit and the tax gap, it should reinstate the levels of funding for IRS collection programs with proven high returns on investment.

It isn’t just the money, of course. For many taxpayers, these private debt collectors would become the public face of the IRS. And I’m not sure they are quite the people who should be playing that role. The agency already must deal with incendiary congressional rhetoric about jack-booted thugs. Imagine the possibilities when the service has only limited ability to oversee private tax collectors who are working in its name—and on commission.

Of course, the agency could always put more resources into training and supervising these private firms. This, of course, would increase the program’s overhead.

In contrast to private contractors, IRS employees have both more clout and more flexibility when it comes to debt collections. They have the hammer, including the ability to impose liens and even seize personal assets. On the other hand, they can also cut deals with taxpayers by granting them partial or installment payment opportunities or even effectively forgiving debts by declaring them not collectible.

Privatization has been an on-gain off-again fad in Congress and the White House for years. And outcomes have sometimes been less than optimal. Contractors played major roles in the wars in Iraq and Afghanistan. They were deeply embedded in the NSA’s ambitious surveillance efforts (Ed Snowden was one). And, let us not forget, they built the technology backbone of the Affordable Care Act’s health exchanges.

I’m not suggesting government contractors are always incompetent or unreliable. Indeed, they have become an integral part of government and are far more effective at doing some tasks than federal or state employees. But based on past experience, it’s pretty clear that collecting taxes is not one of them.



  1. Michael Bindner  ::  3:42 am on May 23rd, 2014:

    The only roles I can see for private collectors are quicker response to taxpayer phone calls and the ability to use more sources to track down taxpayers who have moved or are hiding their addresses. If they are confined to those areas they can do best, it might not be a bad idea. They might also be a bit more effective in helping taxpayers in Chapter 13 (including doing things the lawyer might do, like calculating the interest on tax debt for the period of the Plan).

  2. Steve Ditore  ::  2:07 pm on May 23rd, 2014:

    More phony “privatization” scamming with, once again, a HIGHER price tag and LESS
    accountability. As the IRS Oversight Board clearly stated, this trick has FAILED twice, but
    some antediluvian Reaganomicists still insist on fobbing this fraud again. Utter waste of
    time and taxpayer money to even write the bill. Kill this one in committee, or trade it
    with some Teabagger for ditching some even more idiotic pseudo-legislation the nation
    needs even less.

  3. 2014 IRS TAX CREDITS FOR ENERGY EFFICIENCY  ::  9:16 pm on May 25th, 2014:

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