The debate over private debt collection reflects many of the arguments surrounding the government’s contracting out program in general–as does the up and down status of the initiative. As such, the situation at the IRS could serve as a signal for how the program will fare in the last two years of the Bush administration with Congress in the hands of Democrats.
The IRS says it does not have the resources to step up collection efforts and that hiring contractors on a contingency basis is better than not brining in any revenues on certain accounts.
However, opponents of the plan including federal employee unions–notably the National Treasury Employees Union–and privacy advocates argue that debt collection is an inherently governmental activity that should be exempted from privatization and that IRS employees have been shown to be more cost effective than contractors.
The National Taxpayer Advocate in a recent report echoed those concerns, citing "hidden costs" in the program and pointing out that the agency itself "now acknowledges that it can collect these delinquent accounts more efficiently than — private collection agencies."
IRS commissioner Mark Everson said as much in congressional testimony. When taking into account fees paid to contractors costs were greater than revenues in the program’s first phase.
