More Private Tax Collectors – A Monumentally Bad Idea

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On December 4 President Obama signed into law the Fixing America’s Surface Transportation Act. While it deals with funding transportation, the new law also contains a pernicious scheme to raise revenue. It requires the IRS to use private debt collectors. While the IRS has long had discretion to use outside contractors, the new law makes it mandatory in some circumstances. The IRS must hand over accounts for collection if the statue of limitations is close to running out or if the IRS has been unable to collect. The bottom line is that you’ll see a lot more debt collectors going after citizens who owe taxes.

The IRS is not exactly one of America’s favorite organizations. This law will make it look even worse. At least right now the IRS acts civilly when dealing with taxpayers. There are rules and procedures for interacting with taxpayers. For those who don’t know, private debt collection is a nasty business. Ask your state consumer protection agency, the Better Business Bureau, or the Federal Trade Commission. They’ll all tell you that debt collectors have more complaints than any other industry. Citizens will be placing the blame for aggressive debt collectors on the agency primarily responsible for taxes. For a beleaguered agency like the IRS, that can’t be good.

But there are other problems. Traditionally, the use of private tax collectors has never worked well. It has been an inefficient and expensive way to collect debt. The IRS spends a lot of money administering the debt collection and then spends a lot more money paying the collectors. And don’t forget that there have been many -- and I mean many -- instances of people claiming to be calling from the IRS, engaging in phone scams. The IRS does not harass people over the phone. Private debt collectors do. Expect a sharp increase in con activities.

The debt collection business is unseemly, necessarily so. But I don’t want my government to be unseemly. The impetus for private collection is the inability of the IRS to collect what is owed. But that is a resource issue. The answer is, and should have been, more resources. It is proven that additional resources lead to more tax dollars collected. Unfortunately, the history of private debt collection is not so good.