The Taxpayer and the Tax Collector

04/12/2009 05:12 am ET | Updated May 25, 2011

It was as true . . . as turnips is. It was as true . . . as taxes is. And nothing's truer than them.
Charles Dickens, David Copperfield

When President Obama says he wants to increase employment in this country he is instead doing something that will cause many people to lose their jobs. As Senator Charles Grassley of Iowa, the top Republican on the Senate tax writing committee said: "The administration has decided that after spending nearly a trillion dollars in the stimulus bill to keep people working across the country, they are going to cut a program that provides jobs to hundreds of people during the middle of a recession, including 60 in Iowa. It's hard to believe that after worrying so much about keeping people employed, the administration has chosen this route." What Mr. Grassley was talking about was ending a program that was put in place by the American Jobs Creation Act of 2003.

The most important part of that Act, as most of my readers know, was the part that eliminated the extraterritorial income exclusion that was ruled illegal by the World Trade Organization. Virtually all of my readers know more about that act than I, and hence I'll say nothing about it. What I do know is that tucked in the interstices of the act was a tiny provision that said the IRS could turn over tax collection to private agencies.

Privatizing government as those with long memories recall, was one of the highest priority items for the Bush administration even if privatization increased the cost of a given service to the federal government and, therefore, to the taxpayer. The important word was "private", not "efficient". Even if private contracting was not fiscally efficient, the inefficiency enabled the private sector to grow and kept the public sector small, an undeniable virtue even if the taxpayer was funding the private sector. So enamored of the private sector was George Bush that according to a report on National Public Radio, private contractors received more than twice as much money under the Bush years than they had ever received before. According to the report, the Department of Homeland Security had so many contractors that it had to hire contractors to supervise them. More than half the employees in the Centers for Disease Control and Prevention were corporate contractors. And that brings us to the Internal Revenue Service.

In 2006 it was decided that although some IRS employees historically devoted themselves to tax collection, it would be more consonant with George Bush's idea of non-government, if that task were turned over to private collection agencies. That was not a task that would be without cost, but as observed above, since the increased cost benefited the private sector it was a good thing.

When an IRS employee collects taxes, all the money collected is paid to the government. The employee does not get to keep part of what is collected. The Bush plan contributes to the growth of the private sector because the tax collector was permitted to keep 25 percent of the amount collected thus swelling the tax collector's coffers while keeping the federal government from growing. It was a win-win situation except for one thing. The program was a failure. On March 5 it was announced that the IRS is terminating its contracts with private debt collectors. It is doing so because in-house collection is more cost-effective.

In 2008 hearings were conducted by the House Ways and Means Committee to see how the Bush program was working. It wasn't. According to a government report on the program, 85 per cent of the people called by the debt collectors didn't owe back taxes. It cost the IRS $.07 for each dollar it collected whereas it cost $.24 per dollar collected when handled privately. An analysis of the private collection system further found that the IRS was able to collect 11 per cent of the balance due from individual taxpayers compared with only 4 per cent of the balance due by the private collector.

From the foregoing one sees that Mr. Grassley is complaining because under Mr. Obama's proposal the government will collect more in taxes while sacrificing the ability to help the private debt collection sector grow. In his view, this is clearly the first step towards socialism if not communism. And that's not all.

Senator Grassley says that 60 people in his home state of Iowa will lose their jobs. Embracing the failed policies of the Bush administration he would obviously prefer to have 60 people in the private sector doing an inefficient job of collecting taxes than to turn the job over to the more efficient public sector. That is a good example of why the Republican Party's style of governing has been such a great success during the last 8 years. Those who are longing for the halcyon Bush days should contact Mr. Grassley and let him know of their support.