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.

IRS agrees to not compete with tax preparation services

A legal deal between the IRS and tax filing companies such as H&R Block explains why e-filing often involves shelling out part of that refund. Lower income folks (AGI less than $52,000) can get free federal e-file, but the corresponding state's e-file always costs extra. The IRS has explicitly agreed to not provide a free e-filing option for all taxpayers (despite the cost savings to the IRS) because of this deal.

Two things are disturbing. One, that a government agency can not only decide against providing a service, but can enter into a binding agreement not to (as opposed to Congress trying to prevent competition). Two, that the lawyer for the tax preparation companies threatened to paint the IRS as "Big Brother" if it ever decided to provide the e-file service.

Last time I checked, your social security number is not a mystery to the IRS.