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The National Treasury Employees Union (NTEU) is strongly urging Congress not to force the Department of Treasury to use private tax collectors, a program which failed miserably in the past. The House and the Senate are considering proposals that would require the Treasury secretary to contract with private collection agencies (PCAs) to collect taxes.

“We have been down this road before and the private companies failed on many levels,” said NTEU President Colleen M. Kelley. “In 2009, the Treasury Department made a considered decision to stop contracting out the collection of taxes. Treasury continues to have the authority to use these companies but has chosen not to. Congress should not now force a failed program back into existence. Lawmakers need to respect the lessons learned.”

The Senate Finance Committee approved an amendment to a draft tax package requiring Treasury’s action on the PCAs and similar language is currently included in a tax reform proposal in the House.

“Using private companies to collect tax debt has been tried before, resulting in millions of dollars lost to the government,” said President Kelley. “It was a bad idea then and it is a bad idea today.”

Between 2006 and 2009, the Internal Revenue Service (IRS) contracted with private collection agencies to collect taxes with dismal results. While the program was projected to bring in up to $2.2 billion in unpaid taxes it instead resulted in a net loss of almost $4.5 million to the federal government, after subtracting $86.2 million in program administration costs and more than $16 million in commissions to the PCAs.

“I can say in very clear terms that private tax collection does not save or generate any money for the federal government,” said President Kelley. “It costs a lot of money and risks the privacy of taxpayer information.”

The clear advantages of having IRS employees do the work of collecting taxes is evident from a study conducted by National Taxpayer Advocate Nina Olson, reviewing the work of IRS employees on cases returned to the agency when the use of PCAs was discontinued.

The Taxpayer Advocate found that IRS employees collected about 62 percent more than the PCAs ($139.4 million compared to $86.2 million). The review noted that the results likely understate the difference in effectiveness, since the PCAs worked the cases first and collected the easy dollars while the IRS only got cases the PCAs had already handled.

Additionally, taxpayers who are unrepresented and vulnerable were disproportionately likely to be contacted by private tax collectors. During the failed 2006 outsourcing initiative, a study by the National Taxpayer Advocate found that the median income levels of taxpayers whose cases were assigned to the PCAs was significantly less than the median income of taxpayer cases assigned to IRS collection personnel. Furthermore, the study found that almost 25 percent of the PCA taxpayer population was projected to receive the Earned Income Tax Credit (EITC) compared to just 19 percent of the total IRS collection population.

IRS employees are positioned to assist taxpayers in paying their debts through a variety of tools and options, including the ability to postpone, extend or suspend collection activities for a limited time; make available flexible payment schedules; possibly waive late penalties or postpone asset seizures; and agreements that settle a tax debt for less than the full amount owed. PCAs cannot offer taxpayers these options; they can only demand payment.

“NTEU believes Congress should not override the Treasury Department’s findings and require it to bring back a program that it deemed to be cost ineffective,” President Kelley said.

NTEU is the largest independent federal union, representing 150,000 employees in 31 agencies and departments.