Private Enterprises that Collect Public Taxes.
The Internal Revenue Service has reportedly been studying the feasibility of outsourcing debt collection services for delinquent taxpayers since 2001. The topic raises important issues of privatization, as well as the importance and viability of the debt collection industry in the United States.
Currently as of October 2002, it is estimated that there is $240 billion in uncollected U.S. federal taxes, equaling one third of the current annual federal appropriations budget. Some believe that privatizing tax collection could yield $50 billion over 10 years. Senator Max Baucus (D, Montana), Chairman of the Senate Finance Committee, warned in mid-October 2002 that private debt collection would have to be measured against the privacy rights and other statutory and administrative rights now being afforded to taxpayers. But others, including Sen. Charles Grassley (R., Iowa) and Rep. Rob Portman (R., Ohio) argue that private debt collection could overcome the unfairness of tax cheating to the honest taxpayers who pay their fair share.
One report indicates that, under a 1996 law, the federal government’s other branches, including the Education Department, have used private collectors to collect non-tax liabilities, such as defaulted student loans. The Education Department reportedly “helps” the private debt collectors by agreeing to indemnify them up to a certain amount for violations of federal debt-collection statutes.
Private debt collection agencies, eyeing a potential bonanza of 20% collection fees for these huge sums, have expressed their willingness to accept tough restrictions on their operations, including compliance with applicable debt collection legislation, applicable privacy legislation and other rules governing the government-taxpayer relationship. Currently, the IRS is required to fire its employees who harass taxpayers.
The Wall Street Journal reported that certain governments indemnify their private debt collectors from a limited amount of violations of the laws governing harassment of debtors. This type of indemnification deserves closer scrutiny.