In the last few days, I have been covering the NTA's 2007 annual report. Today's topic is private debt collection.
As readers of this blog know, I have found few arguments in favor of using private debt collection agencies to collect federal income taxes. The objections are many--from the potential leakage of information to the potential misuse of information, from the potential harassment by private collectors eager to make a buck to the lack of cost effectiveness when the IRS pays outside collectors to handle the easier cases of tax collection (by design of the procedures themselves). You can look at some of the earlier postings here, here and here.
The NTA's executive summary is quite clear on the assessment of the private debt collection program.
"The Private Debt Collection initiative is failing in most respects. It is not meeting revenue projections; its return on investment is dismal; the private collection agencies (PCAs) are no better at locating or collecting tax liabilities than the IRS itself; the RIS has failed to require the PCAs to disclose their taxpayer-related procedures to the public to the same extent as the IRS, which shields the program from adequate congressional and public scrutiny; and the IRS is sending the PCAs new cases (because the number of 'easy' cases is smaller than projected) and these new cases may require the exercise of discretion and judgment in collection matters that is appropriately the sole province of the IRS."
The body of the report elaborates, noting that tax collection is a quintessential government function that is "turned on its head" by privatization, which cannot adequately balance the powers to collect revenues with protection of taxpayer rights. The IRS's costs to oversee the program are not insubstantial, yet those costs do not result in the same yield as they would invested in direct collection efforts. The program is currently bringing in about $4 for every $1 invested in collection, in contrast to the IRS's direct collection efforts, which bring in about $20 for every $1 invested in collection.
Although the IRS had justified the program to Congress as a way to collect on "easy" cases that the IRS would otherwise not bother to collect, it ended up removing 30% of the cases initially considered easy because they were more complex and replacing them with older cases that are less likely to be easily collected. The NTA notes that the IRS struggles to find appropriate cases to transfer and is sending cases with very low dollar amounts to the agencies.
And here's a disturbing piece of information of which I was not aware before reading the report. This privatization effort has been protected from providing information to the public through various laws that protect proprietary information, and the IRS has done nothing to ensure that its contracts with the agencies require them to disclose information about their procedures and practices. As a result, the agencies "have designated almost all of their operational plans as proprietary information." This means that their instructions to staff, content of taxpayer letters and calling scripts are not available for review. The NTA argues that, "by bargaining awayt taxpayer rights and hiding the PCA's' procedures behind a veil of secrecy, the IRS is effectively barring the National Taxpayer Advocate from executing her statutory function--namely, speaking up for taxpayers." Now, the IRS also intends to require everyone who has access to any proprietary PCA information--including the NTA--to sign a nondisclosure agreement. The NTA notes that the procedures that the IRS has recently employed for developing the contracts excludes her from the process and prevents any exercise of oversight function by her office on behalf of taxpayers.
That's a lot of failures, and not a single positive word, about private tax collection. And more or less what many critics warned would be the case. So why does the government persist with this program (and even attempt to prvent the NTA from exercising any role in ensuring the adequacy of the PCAs' procedures)? Could it be an ideological bent in the current administration towards privatization of all things governmental, even such inherently governmental tasks as tax collection?