In its zeal to privatize important parts of the government, the Republican-controlled Congress directed the Internal Revenue Service to use private debt collectors for certain tax delinquencies, a program that began last year.
The Obama administration cautioned against the use of bill collectors before legislation authorizing the program passed in 2015. Those warnings went unheeded.
Now, the program is losing money and unfairly hitting the poor.
The National Taxpayer Advocate Service, an independent office within the IRS, says using private bill collectors “has yet to generate net revenues, continues to unnecessarily burden taxpayers experiencing economic hardship and produces installment agreements with high default rates.”
In a report to Congress last week, Taxpayer Advocate Nina E. Olson said the private debt collection program “has yet to break even. About 2 percent of the dollars assigned for collection have been collected thus far.”
Starting in April 2017 — when the IRS began assigning tax debts to private collectors — through March 15, the effort collected $35.4 million, almost 29 percent less than the $45.6 million the program cost.
“How much more proof do we need that replacing the professional civil servants of the IRS with for-profit collection agents working on commissions is a bad financial decision for the U.S. Treasury?” asked Tony Reardon, president of the National Treasury Employees Union (NTEU), which has long opposed private tax collectors. “Congress, which has already raised concerns about the program’s cost and disproportionate burden on lower-income taxpayers, should cancel this program immediately.”
NTEU said it endorsed legislation proposed by Rep. John Lewis (D-Ga.), and Sen. Ben Cardin (D-Md.) “to repeal the congressional mandate that the IRS outsource collection work to for-profit companies.”
Less than two months after Barack Obama took office as president, then-IRS Commissioner Douglas Shulman announced that he was killing a previous iteration of the program, saying, “I believe this work is best done by IRS employees.”
Collecting taxes should qualify as an “inherently governmental” function that Uncle Sam reserves for feds, especially because tax information is private. But conservatives have a much more limited view of what the government should be doing. Republicans succeeded in reviving the program to allow bill collectors to go after folks with “outstanding inactive” tax bills.
Nearly half of the accounts assigned to private collection agencies belong to the very poor.
“Since the IRS implemented the private debt collection (PDC) initiative last year,” Olson wrote in a blog last month, “I have been concerned that taxpayers whose debts are assigned to private collection agencies (PCAs) will make payments even when they are likely in economic hardship — that is, they are unable to pay their basic living expenses. … This is exactly what has been happening.”
Of those who made payments while their debts were assigned to private collectors, Olson’s report said, 44 percent had incomes below 250 percent of the federal poverty level, and 45 percent with payment installment agreements “did not have enough income to pay for their basic living expenses.”
Another problem with private debt collection — the high default rate, 28 percent, on installment agreements, compared with 16 percent for taxpayers not in the program — indicates its negative impact on the impoverished.
Fortunately, Congress is aware of the private tax collection problems for the poor. In April, the House unanimously approved legislation that would exempt those with very low incomes from private collection. Olson called on the IRS to follow that lead and administratively “exercise its discretion” by focusing the program on “those who can afford to pay, instead of people who, by the IRS’s own definition, cannot afford to pay.”
Sen. Charles E. Grassley (R-Iowa) is a prime supporter of the private tax collection program. “The IRS’s private debt collection program only started in April 2017 and isn’t at full capacity,” said his press secretary, Nicole Tieman. “Much of the reported cost of the program is related to one-time start-up expenses and not representative of the cost of the program moving forward. … The income test framework used in the Taxpayer Advocate report can be misleading because it fails to take into account liquid assets, such as cash savings and stock ownership.”
Meanwhile, the IRS is also suffering poor payments from another source — the government. Proposed spending would malnourish the agency that feeds almost all that Uncle Sam does.
Two weeks ago, the Senate Appropriations Committee unanimously approved an $11.3 billion IRS budget for fiscal 2019, an amount “below the 2018 funding level — which is already too low and which is 18 percent below the 2010 level adjusted for inflation,” wrote Roderick Taylor of the progressive Center on Budget and Policy Priorities. “The Senate committee isn’t alone in proposing inadequate IRS funding, as the House Appropriations Committee-approved level and President Trump’s proposal are also below the inflation-adjusted 2018 level. But the Senate committee’s is the lowest among them.”
Being cheap with the IRS only cheats taxpayers.
Because of inadequate funding, “the IRS doesn’t have enough employees to answer the phones, to conduct outreach and education, or to provide basic taxpayer service,” Olson said. “The compliance and enforcement side of the house has been cut by even more. So, in addition to answering the fewest number of enterprisewide taxpayer calls in recent memory, the IRS also has the lowest individual audit rate in memory (0.6 percent) and its collection actions are way down. In fact, the IRS has suppressed collection notices because it doesn’t have the resources to handle the incoming phone calls and correspondence prompted by those notices.”
Olson pointed to Trump’s management agenda, which says people “deserve a customer experience that compares to — or exceeds — that of leading private sector organizations, yet most Federal services lag behind the private sector.”
In the case of the IRS, that poor service seems to be by design.