WASHINGTON -- Senate Republicans want to replace IRS agents with private debt collection agencies, which are known to harass people for overdue credit card bills and student loan payments.
GOP senators have conjured up a host of exotic program cuts to pay for highway construction, which was once considered routine congressional business. Senate Democrats on Wednesday night fought off a GOP effort to pay for the highway funding with Social Security cuts, but the privatized debt collection maneuver remains in the bill.
While privatization is popular with congressional Republicans, collection agencies have terrible reputations. They frequently run afoul of the law by illegally harassing or intimidating borrowers, and sometimes even family members of borrowers who are under no legal obligation to make good on their relatives' debts. Collectors also often get in trouble with the government for tricking borrowers into ponying up payments they are not actually required to make.
Democrats are privately fuming about the GOP's move, which is intended to provide $2 billion for highway maintenance over the next decade. Previous efforts to privatize tax collection, though, have ultimately cost the government money. Two previous government efforts to save money by turning IRS collections over to private industry have backfired, Democratic Senate aides told The Huffington Post. In 1996 and 1997, the government lost a total of $17 million on one such project, the aides said. From 2006 to 2009, a similar effort led to losses of $4.5 million.
The federal highway program has traditionally been funded by a tax on gasoline, which the GOP has refused to raise this time around.
The reason the government loses money when it farms out IRS duties is because the people who owe back taxes generally don't have any money. About 79 percent of people who failed to pay their tax bills in 2013 were essentially too poor to pay up, the Senate aides said, according to their internal analysis of IRS data.
Putting debt collectors in charge of those accounts won't create any new money for the households. It will, however, create new administrative costs as the government transfers its accounts to private companies -- along with a new set of headaches for many low-income people.
The Senate bill cleared a key procedural hurdle Wednesday night and is expected to receive a vote soon. However, Senate Majority Leader Mitch McConnell (R-Ky.) still has the option of moving to eliminate the private debt collection provision.