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Wednesday, January 23, 2008

Only Republicans outsource to lose money

It's tax season, judging by the W-2 forms and mailers with multiple perforations showing up in my mailbox. So here'a a thought about how those tax dollars are being spent, in one specific tax-related agency.

The IRS is outsourcing tax collections to private collections firms because of a shortage of in-house revenue officers. The collectors will help bring in billions of tax dollars that might otherwise go unpaid. For their fee, the collections agencies will keep 22-24 cents of every dollar they collect. Not a bad deal for keeping the IRS lean and mean, eh?

Except that the overhead for the IRS to do the work itself is only three cents of every dollar. That's right, government is 7-8 times more efficient at collections than the private sector. And it adds up. Over 10 years, the IRS reports that it could collect up to $87 billion in underpayments, compared to less than 2 billion from the contractors.

Note: this isn't the only way the Republican administration has hamstrung the IRS. It also prevents them from providing free tax e-filing.

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