IRS Privatizing Collection of Back Taxes
Dean Baker comments on a David Cay Johns[t]on article as to how 12,500 taxpayer’ debts will be handed to private collectors. Johns[t]on writes:
Within two weeks, the I.R.S. will turn over data on 12,500 taxpayers – each of whom owes $25,000 or less in back taxes – to three collection agencies. Larger debtors will continue to be pursued by I.R.S. officers. The move, an initiative of the Bush administration, represents the first step in a broader plan to outsource the collection of smaller tax debts to private companies over time. Although I.R.S. officials acknowledge that this will be much more expensive than doing it internally, they say that Congress has forced their hand by refusing to let them hire more revenue officers, who could pull in a lot of easy-to-collect money. The private debt collection program is expected to bring in $1.4 billion over 10 years, with the collection agencies keeping about $330 million of that, or 22 to 24 cents on the dollar. By hiring more revenue officers, the I.R.S. could collect more than $9 billion each year and spend only $296 million – or about three cents on the dollar – to do so, Charles O. Rossotti, the computer systems entrepreneur who was commissioner from 1997 to 2002, told Congress four years ago. I.R.S. officials on Friday characterized those figures as correct, but said that the plan Mr. Rossotti had proposed had been forestalled by Congress, which declined to authorize it to hire more revenue officers.
Beyond the potential abuse of lower income taxpayers as the IRS does not do the same thing for the fat cats, I don’t get the economics of this decision. If it costs the government only 3 cents on the dollar, why is the commission rate for the private collectors set at 23 cents on the dollar. Either these private collection agencies very inefficient relative to letting the government do the job internally – or this program will shift a lot of profits to some very lucky (perhaps politically connected) companies. But isn’t this politics as usual ever since January 20, 2001?
Update: David Cay Johnston sends a kind email reminding yours truly to spell his last name correctly as I omitted the “t” in his last name. Other reminder – his middle name starts with “c” not “k”. Those of us who admire his writing own him the courtesy of getting his name right.