April 29, 2017

Tax farming — tax collection by private individuals — is a system subject to abuse. A limited version of it — private collection of delinquent taxes — has been tried by the U.S. government, twice, with poor results. Nevertheless, and true to its privatization obsession, Congress tucked a clause into a highway bill which requires the IRS to "enter into qualified tax collection contracts to collect outstanding inactive tax receivables," i.e., to farm out tax collection to private collection agencies. The IRS has selected four companies to pursue those delinquent accounts.

One might think that increasing the IRS budget, allowing it to hire more agents, would be a better plan than giving 25% of collections to the debt collectors, especially as their record at collection during prior trials is unimpressive. Also, the new program opens up opportunities for fraud and abuse, both by the designated collectors and by others posing as such.

The IRS announced that it would begin using the debt collectors in April. One of the companies selected by the IRS is Pioneer Credit Recovery, a subsidiary of Navient Corporation. Two years ago, Pioneer was accused by the Education Department of misleading borrowers about their loans. In January of this year, the Consumer Financial Protection Bureau filed suit against Navient, accusing it of "systematically and illegally failing borrowers at every stage of repayment," and cheating "many struggling borrowers out of their rights to lower repayments, which caused them to pay much more than they had to for their loans."[24]  The same month, the States of Washington and Illinois sued Navient; the Washington Complaint accused it of a number of unfair and deceptive practices, including "aggressive and misleading collection tactics."[25]

Privatization is a dubious idea in any area of government activity. Privatizing tax collections is worse. Selecting a company with a bad reputation, one other government agencies accuse of wrongdoing, is difficult to explain. Of the four companies approved, two are from New York, including Navient-Pioneer, and one is from Iowa. Senators Schumer (New York) and Grassley (Iowa) are supporters of private tax collection. Apparently their viewpoint allows them to see an advantage invisible to most of us.

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24. https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-nations-largest-student-loan-company-navient-failing-borrowers-every-stage-repayment/
25. http://www.atg.wa.gov/news/news-releases/ag-ferguson-files-suit-against-sallie-mae-offshoot-navient-corp-announces-student