House Votes to Kill IRS's Use of Private Debt Collectors

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The House of Representatives voted Wednesday to ban the IRS from using private debt collectors to help collect delinquent taxes after its current contracts with collection agencies expire in March 2008. The IRS's private debt collection program pays contractors a commission of 21 to 24 cents for every dollar of tax debt that they recover, while it's estimated that IRS employees can do the job for about 3 cents for every dollar collected. The private contractors are paid on a commission basis unlike IRS employees, so there is a concern among many that they have an incentive to be overly aggressive and less respectful of taxpayers' privacy rights.

The Senate Finance Committee has not taken up the private debt collection issue although there is a bill (S. 335) sponsored by Senator Byron Dorgan (D-ND) to end the program. Meanwhile, the White House has threatened to veto the House bill (H.R. 3056) if enacted because it will cost the federal government revenues "that are otherwise not likely to be collected by the IRS."

This argument is ridiculous. The ten-year projected cost of the measure is just over $1 billion and that cost is offset in the bill with revenue-raising provisions. But the more fundamental point is that this measure should not be scored as costing anything at all. When Congress cuts back the tax enforcement staff at IRS, this reduction is not counted as a "cost" even though IRS personnel actually collect a lot more in taxes than do the private debt collectors. The private debt collection program seems driven by the ideology that the private sector always works better, even when the facts clearly state otherwise.

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