Privatizing the IRS
Date Written: 26/01/2018
Year Published: 2018
Resource Type: Article
Cx Number: CX22476
The headline in the New York Times on January 10, 2018, a few short days before Congress decided it was easier to shut down the government than to legislate, announced that the I.R.S. "paid $20 million to collect $6.7 million in Tax Debts." At first blush the reader assumed this was a story that had somehow crept into the newspaper by mistake and escaped the attention of the articles editor. The reader who thought that could be forgiven for being surprised at seeing the story. That is because that story had appeared in the New York Times and other publications on two earlier occasions.
In 1996 Congress decided that the Internal Revenue Service could be assisted in collecting unpaid taxes by hiring Private Collection Agencies known as PCAs. Their task was to undertake collections from delinquent taxpayers. The program lasted one year before it was terminated. It was terminated because instead of making money for the government by collecting back taxes, it cost the government $17 million. In addition, it was learned that the PCAs had regularly violated the terms of the Fair Debt Collection Practices Act.
Those interested in collecting past due debts might find themselves leery of giving such a failed effort a second chance. Proving that "once bitten, twice shy" does not apply to Congress, however, the program was re-introduced again in 2004 as part of the American Jobs Creation Act. According to projections at the time that Act was passed, and contrary to empirical evidence from less than 10 years earlier, its Congressional supporters said that the PCAs would collect $1.3 billion and receive commissions of $350 million. It was, so the Congress believed, a sure fire winner.
In 2008 the House Ways and Means Committee held hearings to determine how well the program was working. Here is what it learned. It learned that 85 percent of the people contacted by the PCAs did not owe any back taxes. It learned that, whereas it cost the IRS $.07 for every dollar it collected, it cost the PCAs $.24 to collect the same amount. The IRS had an 11 percent success rate whereas the PCAs had a 4 percent success rate. The PCAs did not collect the promised $1.3 billion. They collected $4.5 million. By most measures that would not be considered a success. Nonetheless, the program continued until it was ended in 2009 by President Obama, who looked at the statistics and came to the conclusion that the program was not working as advertised by its proponents in 2004. Ending the program infuriated Senator Chuck Grassley (R. IA) who had always been a strong supporter of the program and believed that notwithstanding its obvious failures, the fact that the collections were handled by the private sector rather than the public sector was reason enough to continue the program. (Senator Grassley also observed that 60 people in his home state of Iowa would lose their jobs as a result of termination of the program.) And that brings us to the present when we learn that "the third time's a charm" has no applicability to congressional actions.