IRS Commissioner Doug Shulman has announced, "after a thorough review", that it will end the experiment in using private debt collectors when the current contracts with two private debt collection companies expire today (Mar. 6). IRS Employees More Flexible, More Cost Effective, IR-2009-19, Mar. 5, 2009. "The program costs about $7.6 million a year to administer, and private contractors are allowed to keep about a quarter of the taxes they collect." Ohlemacher, IRS to drop private debt collection program, Mar. 5, 2009. Collections under the program were not very successful. After the first year of the program, the contractors had collected only about $29 million in back taxes, amounting to less than 4% of the $787 million of back taxes they were assigned to collect. But they got to keep a staggering $6.35 million of the $29 million collected--not bad pay for the easiest tax debt collection work. See Donmoyer, Private Debt-Collection Plan Ended by Internal Revenue Service, Bloomberg.com, Mar. 5, 2009. The IRS's review found that collection costs for the privatization program were much higher than for government work: 24 cents per dollar collected, compared to 7 cents per dollar collected by the IRS. Lawder, U.S. IRS to end contracts with private tax debt collectors, Reuters, Mar. 5, 2009
Instead, the agency will rebuild its own employee base that was decimated under the years of GOP treatment, beginning with Reagan's "revolution" in the 1980s, that cut funding for many of the most important federal agencies (other than, of course, the military, which instead enjoyed unprecedented budget buildup), leaving them short-staffed and unable to execute the laws appropriate, thus carrying out Reagan's pro-business, anti-government philosophy that viewed government agencies as part of the problem rather than important players in a complex society requiring public and private cooperation. As many as 1,000 new IRS collection staff may come on board this year under this change of plans. Shulman indicated that those employees will provide "flexibility to make assignments based on the areas of greatest need rather than filtering which cases can be worked using contractor resources." IRS Employees More Flexible, More Cost Effective, IR-2009-19, Mar. 5, 2009. Private debt collection had sent the easiest cases to private companies, a process that made little sense.
When the GOP-dominated Congress passed a bill permitting private collectors to do the government's job, Democrats almost immediated began work to end the program, "raising concerns about its effectiveness and reports of taxpayer harassment." Lawder, U.S. IRS to end contracts with private tax debt collectors, Reuters, Mar. 5, 2009. Shulman's review found that collection costs for the privatization program were much higher than for government work: 24 cents per dollar collected, compared to 7 cents per dollar collected by the IRS. Id. Similarly, ataxingmatter noted several problems with that approach, including the following: (1) privatization for the sake of eliminating government agencies is inappropriate for quintessentially governmental functions, like tax collection, where the behavior and liability of the private parties cannot correspond to the same requirements for government employees, (2) privatization of the primary debt collector role doesn't make sense when the government must ensure the accountability by retaining staff to oversee the private staff, as is the case with private debt collection of federal taxes, (3) privatization of the "easiest" part of the government function most assuredly is senseless, since it allows private companies to grab an easy (and undue) profit from the prime collection targets, leaving government employees, as always, to struggle with the difficult ones, and (4) privatization of debt collection, for reasons related to 1-3, probably costs more money than having the government do the job directly. The National Taxpayer Advocate has had similar concerns since the program started, and has openly advocated for an end to the experiment. See, e.g., National Taxpayer Advocate Report to Congress and Private Debt Collection, July 9, 2008 (noting excessive costs of PDC); Private Debt Collection of Federal Taxes: National Taxpayer Advocate continues to condemn it, Mar. 15, 2008; Private Debt Collection of Federal Taxes: Letter from Senators in advance of Shulman Confirmation Hearing, Jan. 29, 2008; Private Collection of Federal Taxes: Efforts To End It, Feb. 22, 2007; Outsourcing of Tax Collections, Sept. 12, 2006; Day, IRS Urged to Abandon Private Debt Collection, Washington Post, Jan. 10, 2007 (noting Olson's view that "the IRS could do a better job and for less money").
Democratic chair of the House Ways and Means Committee Charles Rangel, speaking to a reporter for Dow Jones Newswires, said that he "applaud[s] Commissioner Shulman's decision to end the private debt collection program. American taxpayers deserve to work with the trained professionals from the IRS to work through any issues they have." Meanwhile Charles Grassley, Ranking Senate Republican on the Finance Committee, "blasted the decision" for cutting a job-providing program and blamed union political pressure. Vaughn, IRS Eliminates Debt Collection by Private Agencies, DowJones, Mar. 5, 2009. CBE Group, one of the two remaining contractors of the three originally participating in the program (the other is Pioneer Credit Recovery, a subsidiary of Sallie Mae), is based in Waterloo, Iowa. Donmoyer, Private Debt-Collection Plan Ended by Internal Revenue Service, Bloomberg.com, Mar. 5, 2009.
Rangel has it right, and Grassley is just joining the rest of the Republican party in blaming unions for all things that don't go the Republicans' way. Fact is, unions are probably much more concerned about jobs for everyday workers than Charles Grassley. Workers at those debt collection agencies will likely have plenty of work in these difficult economic times--banks, hospitals, retailers, and manufacturers are hounding people for debt payments and often hire collectors to do their dirty work. And the decision will create 1000 jobs. Now, that's a pretty good deal--save the government a lot of money by doing it for 7c/dollar collected instead of 24c/dollar collected, AND create a thousand new jobs!
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