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Washington, D.C.—The private tax collection program of the Internal Revenue Service (IRS) will cost the government more than $81 million in foregone revenue this year—and as much as half-a-billion-dollars in such losses over the next six years—the IRS’s National Taxpayer Advocate told a key House subcommittee today.

“Since the purpose of the (private collection) program was to raise revenue,” Taxpayer Advocate Nina Olson told the House Ways and Means Oversight Subcommittee, “the fact that it is costing the government $81 million or more each year destroys whatever thin rationale might remain for its existence. I believe it is time to end the program.”

Olson’s repeated calls for an end to the program underscore the continuing strong opposition of the National Treasury Employees Union (NTEU) to the IRS’s misguided and costly use of private tax collectors. NTEU President Colleen M. Kelley, who submitted testimony to today’s hearing, has led the fight against the program.

“There has been no question from the outset,” Kelley said, “that using private companies to collect taxes is far more costly than having trained, accountable IRS employees perform this work and poses a severe and unnecessary risk to taxpayers’ sensitive and personal information.”

Taxpayer Advocate Olson told the subcommittee that IRS expenditures of $7.65 million in appropriated funds this year will generate about $11 million in net revenues from the private collection program—but would generate at least $91.8 million if applied to the agency’s Automated Collection System function. “In other words,” she said, “the opportunity cost of spending $7.65 million of appropriated funds on the (private collection) program each year is $81 million, and possibly much more.” By the IRS’s own testimony today, the program won’t recover start-up and maintenance costs until fiscal 2010—despite initials projections that such costs would be recovered this year.

Olson wasn’t the only sharp critic of the program at today’s hearing; Rep. Bill Pascrell, Jr. (D-N.J.) called for an end to the program. “The privatization of federal income tax collection has proven to be a failure,” stated Pascrell. “Taxpayers have been harassed, accountability has been lost, and the high cost has negated any fiscal benefit to the national economy. The cost of privatizing debt collection has already set our government back over $50 million. The United States stands to restore the integrity of our tax system and make fiscal gains by returning all tax collection responsibilities to the federal employees of the IRS.”

In her submitted testimony, President Kelley called for an annual 3 percent net increase in IRS staffing over the next five years to gradually rebuild the agency’s depleted workforce. Such a hiring program is necessary, she said, so that the IRS can “continue to make improvements in taxpayer services while handling a growing workload and increasing collections.” The program would result in the addition of about 2,600 positions a year, she said.

The NTEU leader said these increases would significantly bolster the workforce and result in the collection of additional billions of dollars in taxes—a vital move forward in closing the multi-billion dollar gap between taxes owed and taxes paid. This ‘tax gap’ currently is some $345 billion.

Despite the clear need for additional personnel, in both customer service and collection and enforcement activities, President Kelley said the administration “continues to put forth insufficient and unrealistic budget requests” that fail to allow the agency to meet challenges in each of these areas.

The NTEU leader pointed to the sharp decline in the number of Revenue Officers (ROs) and Revenue Agents (RAs)—two groups critical to reducing the tax gap—in the period between 1995 and 2007. Over those years, the number of ROs fell by one-third, from 8,139 to 5,468, while the RA staff declined by 20 percent, falling from 16,078 to 13,026. Overall, the IRS workforce has declined from a 1995 level of 114,064 employees to its current level of 86,638.

These drastic cuts occurred, she said, during a time when the IRS’s workload “has increased dramatically.” The agency’s own reports show that taxpayers filed 114.6 million individual returns in 1995, a figure that climbed to 134.4 million 11 years later. Not only that, she said, in the decade between 1997 and 2007, the number of individual tax returns with $100,000 in reported income—which generally are more complex returns—increased by 103 percent.

“Instead of rushing to privatize tax collection functions, which jeopardizes taxpayer information, reduces potential revenue for the federal government and undermines efforts to close the tax gap,” she said, “NTEU believes the IRS should increase compliance staffing levels to ensure that the collection of taxes is restricted to properly trained and proficient IRS personnel.”

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