AFTER YEARS of prodding by the Bush administration and a heap of campaign contributions from debt collection companies, Congress has given the Internal Revenue Service clearance to have private debt collectors go after delinquent taxpayers. The temptation is understandable, but it should have been resisted. The IRS -- if it had the resources -- could recover far more money for the Treasury by doing this work itself. And privatizing tax collection, a quintessentially governmental function, could subject taxpayers to abuse and invasion of privacy, no matter how carefully the IRS oversees the program.
The government has a few hundred billion dollars in unpaid back taxes on its books, of which it estimates about $80 billion could be collected. In a sensible world, the IRS would be given enough money to do this job, since the average collection officer brings in about $900,000 annually -- far more than he or she costs the government. But this is not a sensible world, or at least not a sensible government; under perverse budget rules, adding IRS employees shows up only as an outlay. So there's scant prospect that the IRS will get the resources. Should private debt collection agencies fill the void?
This wouldn't be as unusual as you might think. More than 40 states use private collection agencies in their tax programs. The Education Department deploys debt collectors to go after delinquent student loans, and the Treasury Department uses them for other debts. The IRS itself experimented with such a program during the 1990s but found that it cost more than it brought in.
Now a provision buried in the recent corporate tax bill would allow the IRS to try again, with changes designed to make the program more successful than its predecessor. Rather than being paid for their services, the collection agencies would get up to 25 percent of the money. The IRS will outsource the easiest debts to collect -- for example, taxpayers who have acknowledged owing money but failed to write a check for the full amount. The Treasury Department estimates that private debt collectors could bring in an extra $1 billion in 10 years. And the IRS seems to be building sensible oversight and privacy protections into the program. Debt collectors would be bound by the same rules as IRS agents; they couldn't threaten or intimidate taxpayers and wouldn't have access to underlying tax records.
Still, it makes us queasy to put this job in private hands, and it's too bad that a provision to stop the IRS from doing so, offered by Reps. Shelley Moore Capito (R-W.Va.) and Chris Van Hollen (D-Md.), was stripped from the omnibus spending bill just passed by Congress. The debt collection industry may have improved its practices in recent years, but it still is the leading source of complaints to the Federal Trade Commission. Just a few years ago, Congress was in a tizzy about abusive IRS tactics. Do lawmakers think that private debt collectors are a safer bet? In response to complaints about IRS bullying, Congress prohibited the IRS from evaluating employees on the basis of the amounts they recover. If that was deemed to produce bad incentives in government workers, wouldn't it be even more dangerous to pay commissions to private debt collectors, whose jobs may depend on their ability to produce?