House Bill Would End Private Tax Collection Program

Wednesday, October 10th 2007, 6:41 pm
By: News On 6

WASHINGTON (AP) _ A small program to privatize some tax collection generated big talk in the House.

Democratic critics conjured up images of bounty hunters harassing old people. Republicans warned of paying back labor bosses trying to secure more unionized government jobs.

The Democrats prevailed in a 232-173 vote Wednesday to end the year-old program under which the Internal Revenue Service farms out lower-priority delinquency cases to private debt collectors.

The victory could be short-lived. Senate action is uncertain and the White House, saying the program is bringing in needed revenue, threatened a veto.

A measure awaiting action by the full Senate effectively would cut off money for the program. But Sen. Charles Grassley of Iowa, top Republican on the Finance Committee and a supporter of the program, said ``this bill is dead on arrival in the Senate as far as I'm concerned.''

Under the program, the IRS turns over to several private collection agencies those delinquency cases, often in the $5,000 to $10,000 range, that the IRS lacks the manpower to pursue.

Since it began a year ago, collection agencies have taken in $32 million. Of that, about $7 million came from people who paid after getting letters from the IRS that their cases were being turned over for private collection.

The agencies, entitled to commissions of up to 24 percent, received $5.5 million on the $25 million they collected.

Democrats said the net revenues of almost $20 million contrasted with $71 million in startup costs. ``There is simply is no evidence that private tax collectors are more efficient. In fact the opposite is true,'' said House Majority Leader Steny Hoyer, D-Md.

The National Treasury Employees Union, which has led the campaign to end the program, cited estimates that the IRS could have increased revenues by $1.4 billion had it used that $71 million to hire more agents.

The union's president, Colleen M. Kelley, said approval of the bill ``would be a major step forward in stopping this misguided, costly program.''

But the Tax Fairness Coalition, which represents the private companies in the program, said there are nearly 2.9 million delinquent taxpayers who may escape notice because the IRS lacks the resources to pursue them.

``Congress is about to leave money on the table by killing a successful and innovative public-private partnership,'' coalition spokesman Dan Drummond said.

The legislation drew heated words from both sides.

Rep. Dennis Cardoza, D-Calif., said Congress must stop ``bounty hunters from harassing American taxpayers.'' Rep. Pete Sessions, R-Texas, said Democrats were acting ``on behalf of big public sector union bosses'' at the expense of taxpayers.

The IRS has estimated that the program could produce between $1.5 billion and $2.2 billion over the next decade.

IRS officials, in testimony to Congress, have acknowledged that the IRS could do a better job in collecting the late payments but simply does not have the staff to handle the cases it assigns to the private debt collectors.

Twenty-five cents on every dollar collected goes to the IRS for enforcement purposes, including the hiring of more agents.

The IRS generally has commended the private agencies for adhering to strict rules _ such as no late night phone calls or direct visits _ to protect people from harassment or invasions of privacy.

The House Ways and Means Committee, which produced the legislation, said repealing the program would cost the government about $1 billion over 10 years. The bill makes up for $730 million of that by tightening current law to ensure that the wealthy cannot avoid taxes by renouncing their citizenship or ending their U.S. residence.

It would raise an additional $400 million over 10 years by increasing penalties for failing to comply with tax information reporting requirements and repealing suspension of payments of other penalties and interest.

The bill would delays for a year, until Jan. 1, 2012, a requirement, aimed at improving tax compliance, that federal, state and local governments withhold 3 percent of payments made to contractors.