If at first you don’t succeed, try, try again.
That mindset is on display in Congress right now as both chambers are considering bills that would require the Internal Revenue Service (IRS) to hire private contractors to help collect millions of dollars in delinquent federal taxes. With the IRS forced to cut its in-house collection staff over the last few years due to budget constraints, the delinquent tax total is growing and so is pressure on the IRS to turn to the private sector for help.
But we’ve been down this road before, and the results were less than encouraging. The Project On Government Oversight documented the recent history of private debt collection in our Bad Business report. While tax collection is considered an inherently governmental function (see “Appendix A. Examples of inherently governmental functions….20. The collection, control, and disbursement of fees, royalties, duties, fines, taxes and other public funds….” Emphasis added), staffing shortages in the 1990s compelled the IRS to hire private companies to assist the agency in recovering unpaid taxes in relatively simple collection cases.
The IRS conducted a pilot private debt collection program in 1996 but canceled it after one year due to disappointing recovery totals by the contractors and larger than expected costs (see page 6). Ten years later, a second experiment with private collection of delinquent taxes was also scrapped after a brief run. In addition to cost-ineffectiveness—the cost per delinquent tax dollar collected was more than three times greater for contractor employees than for IRS employees—there were also complaints ofthreats, misinformation, and other underhanded tactics by the collection companies.