[Congressional Record Volume 141, Number 133 (Wednesday, August 9, 1995)]
[Senate]
[Pages S12000-S12002]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         COLLECTION ACTIVITIES OF THE INTERNAL REVENUE SERVICE

  Mr. PRYOR. Mr. President, on Saturday when the Treasury, Postal 
Service and general Government appropriations bill came to the floor of 
the Senate, it had what I thought to be a rather odd provision. I 
authored and had introduced in my behalf--I was not present on 
Saturday--an amendment to strike $13 million to ``initiate a program to 
utilize private counsel law firms and debt collection agencies in the 
collection activities of the Internal Revenue Service.''
  In short, Mr. President, this provision requires the IRS to spend $13 
million--this was under the proposed language--to hire private law 
firms and private bill collectors to collect the debts of the American 
taxpayer owed to the Internal Revenue Service. My amendment is very 
simple. It strikes this provision from the Treasury, Postal Service 
appropriations bill, as well it should. I thank the managers of the 
bill for accepting my amendment. I urge the conferees to stay with the 
decision of the Senate in this matter.
  Mr. President, in over 200 years of our Federal Government, we have 
never turned over the business of collecting taxes to the private 
sector.
  I must point out that this dubious practice is as old as the hills 
and dates back to ancient Greece. The practice of a private tax 
collection theory even has a name, I have discovered. It is called tax 
farming. Its modern history is chronicled in a book authored by Charles 
Adams, a tax lawyer and history teacher. This book is named, ``For Good 
and Evil: The Impact of Taxes on the Course of Civilization.''
  In this book, Mr. Adams recounts many tales of how the world has 
suffered under the oppression of tax farmers. He specifically describes 
the tax farmers sent by the Greek kings to the island of Cos as 
``thugs, and even the privacy of a person's home was not secure from 
them,'' according to the author. He further states that a respected 
lady of Cos around 200 B.C. wrote, ``Every door trembles at the tax-
farmers.'' Once again, Mr. President, the tax farmers were the private 
collectors of the public debt.
  In the later Greek and Roman world, no social class was hated more 
than the tax farmer. A leading historian of that period described tax 
farmers with these words:

       The publican (keepers of the public house) certainly were 
     ruthless tax collectors, and dangerous and unscrupulous 
     rivals in business. They were often dishonest and probably 
     always cruel.

  Tax farming flourished; it was a monster of oppression in Western 
civilization, in many forms, for over 2,500 years until its demise 
shortly after World War I.
  Tax farming, Mr. President, brutalized prerevolutionary France. The 
French court paid the price during the Reign of Terror when the people 
were so incensed that they rounded up the tax farmers, they tried them 
in the people's courts and they condemned them to death. Accounts of 
this time tell us of the taxpayers cheering while 

[[Page S12001]]
the heads of the tax farmers tumbled from the guillotine.
  In 17th century England, Charles II imposed a hearth tax assessing 
two shillings per chimney in each house. To collect it, the King 
contracted out--in fact, he privatized the tax collection system--with 
private collection parties named by the people as ``chimney men.'' 
These chimney men were ruthless. They were hated by the people of 
England. Hatred of the privately collected tax helped to depose 
Charles' brother, James II. As soon as the new monarchs, William and 
Mary, were installed, the House of Commons abolished the tax, ending a 
``badge of slavery upon the whole people that allowed every man's house 
to be entered and searched at the pleasure of persons unknown to him.''
  I am not suggesting that providing $13 million to the Internal 
Revenue Service in order to contract out, to privatize collections with 
private law firms and collection agencies will cause anyone to actually 
lose their head, but for well reasoned decisionmakers history should be 
utilized as a guide as to what is and what is not a good idea. Clearly, 
history tells us that contracting out the tax collection system and the 
responsibilities that Government should be performing is not a good 
idea.
  Some very notable economists and philosophers have also warned 
against tax farming. In his book, ``The Wealth of Nations,'' Adam Smith 
states, ``The best and most frugal way of levying a tax can never be by 
farm.''
  Mr. President, I know there are those in this Chamber who revere Adam 
Smith so I hope they will heed his message in ``The Wealth of Nations'' 
against tax farming. Just as relevant to the discussion is how this 
practice may be employed in our time and by the Federal Government. Who 
will these people be? How will they be hired? Who will train them? Who 
will oversee them? Which taxpayers' cases can they work on? What type 
of taxpayer information will be made available to them? And how will 
these private bill collectors be paid? Will we be creating a true 
bounty hunter system within our tax collection process?
  This legislation provides no answer to these important questions. It 
simply provides taxpayers' dollars, $13 million, to nameless, faceless, 
untrained, unaccountable bill collectors and law firms with no guidance 
as to how they will be paid or how they will protect the 
confidentiality of the taxpayer's information.
  Let us just briefly explore two of the questions I have just 
mentioned. First, to what type of taxpayer information will these 
private bill collectors have access? The American people demand that 
their tax return information be kept confidential, that it will only be 
shared with the appropriate personnel within Government. It is an 
essential element which lends confidence in our tax system, and it 
leads to a very high percentage of voluntary compliance. If taxpayer 
information is shared outside of the Government confidence, how many 
taxpayers will decide to no longer comply? This is a critical question. 
I fear in an effort to collect more revenues we will in fact collect 
less.
  Second--and I am about to close, Mr. President--how will these bill 
collectors be paid?
 This bill does not specify that, and also does not specify which of 
these private law firms and private collection agencies will be 
compensated.

  Mr. President, most bill collectors are paid on a contingency basis; 
that is, they are compensated by a percentage of what they collect. 
Again, bounty hunters will be created to collect our taxes.
  It is exactly what the 1988 taxpayer bill of rights, which passed 
that year, declared illegal and unlawful. There is included in the 
taxpayer bill of rights a strict prohibition against the Internal 
Revenue Service from using enforcement goals or quotas.
  Mr. President, I know that my time is running out, but I would like 
to have printed in the Record a letter from the Commissioner of the 
Internal Revenue Service, Margaret Milner Richardson, that she wrote to 
me on August 4, stating her grave concern about even the remote 
possibility of farming out and privatizing the IRS collection system.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                       Department of the Treasury,


                                     Internal Revenue Service,

                                   Washington, DC, August 4, 1995.
     Hon. David Pryor,
     U.S. Senate,
     Washington, DC.
       Dear Senator Pryor: I am writing to express my concern 
     regarding statutory language in the FY 1996 Appropriations 
     Committee Bill (H.R. 2020) for Treasury, Postal Service and 
     General Government that would mandate the Internal Revenue 
     Service (IRS) spend $13 million ``to initiate a program to 
     utilize private counsel law firms and debt collection 
     activities * * *'' I have grave reservations about starting 
     down the path of using private contractors to contact 
     taxpayers regarding their delinquent tax debts without 
     Congress having a thorough understanding of the costs, 
     benefits and risks of embarking on such a course.
       There are some administrative and support functions in the 
     collection activity that do lend themselves to performance by 
     private sector enterprises under contract to the IRS. For 
     example, in FY 1994, the IRS spent nearly $5 million for 
     contracts to acquire addresses and telephone numbers for 
     taxpayers with delinquent accounts. In addition, we are 
     taking many steps to emulate the best collection practices of 
     the private sector to the extent they are compatible with 
     safeguarding taxpayer rights. However, to this point, the IRS 
     has not engaged in contractors to make direct contact with 
     taxpayers regarding delinquent taxes as is envisioned in H.R. 
     2020. Before taking this step, I strongly recommend that all 
     parties with an interest obtain solid information on the 
     following key issues:
       (1) What impact would private debt collectors have on the 
     public's perception of the fairness of tax administration and 
     of the security of the financial information provided to the 
     IRS? A recent survey conducted by Anderson Consulting 
     revealed that 59% of Americans oppose state tax agencies 
     contracting with private companies to administer and collect 
     taxes while only 35% favor such a proposal. In all 
     likelihood, the proportion of those opposed would be even 
     higher for Federal taxes. Addressing potential public 
     misgiving should be a priority concern.
       (2) How would taxpayers rights be protected and privacy be 
     guaranteed once tax information was released to private debt 
     collectors? Would the financial incentives common to private 
     debt collection (keeping a percentage of the amount 
     collected) result in reduced rights for certain taxpayers 
     whose accounts had been privatized? Using private collectors 
     to contact taxpayers on collection matters would pose unique 
     oversight problems for the IRS to assure that Taxpayers Bill 
     of Rights and privacy rights are protected for all taxpayers. 
     Commingling of tax and non-tax data by contractors is a risk 
     as is the use of tax information for purposes other than 
     intended.
       (3) Is privatizing collection of tax debt a good business 
     decision for the Federal Government? Private contractors have 
     none of the collection powers the Congress has given to the 
     IRS. Therefore, their success in collection may not yield the 
     same return as a similar amount invested in IRS telephone or 
     field collection activities where the capability to contact 
     taxpayers is linked with the ability to initiate liens and 
     levy on property if need be. Currently, the IRS telephone 
     collection efforts yield about $26 collected for every dollar 
     expended. More complex and difficult cases dealt with in the 
     field yield about $10 for every dollar spent.
       I strongly believe a more extensive dialogue is needed on 
     the matter of contracting out collection activity before the 
     IRS proceeds to implement such a provision. Please let me 
     know if I can provide any additional information that would 
     be of value to you as Congress considers this matter.
           Sincerely,
                                       Margaret Milner Richardson,
                                                     Commissioner.

  Mr. PRYOR. I strongly believe, Mr. President, it is an idea whose 
time has not come. I strongly urge, Mr. President, that our conferees 
on the Treasury, Postal Service, and General Government appropriations 
bill adhere to the decision that we made, that now is not the time nor 
will it be in the near future for us to privatize the collections of 
the Internal Revenue Service.
  Mr. SIMON. Would my colleague yield for a question?
  Mr. PRYOR. I will be proud to yield to my friend from Illinois.
  Mr. SIMON. First of all, I concur completely. This idea of 
privatizing everything sounds good. What it does, it gives an 
administration or a Congress an ability to say, ``Oh, we have reduced 
the number of Federal employees.'' We do not save one dollar for the 
Federal Government. And we invite abuse.
  I would mention second--I would be interested in the reaction of the 
Senator from Arkansas--I have learned, in the Office of Personnel 
Management, we are moving toward privatizing the investigators there, 
the people who will investigate people for trust positions with the 
U.S. Government. Now, you privatize that and someone maybe is slipped a 
few dollars or--all kinds of abuse is possible there.
  Does the Senator from Arkansas think that privatizing investigators 
in 

[[Page S12002]]
the Office of Personnel Management is a direction in which we ought to 
go?
  Mr. PRYOR. Mr. President, I do not know how much time I have left. 
But I would respond to my friend from Illinois that I have been here 
now for 16\1/2\ years. I have watched us rely, as a Government, more 
and more on private contractors--and we are not holding down the cost 
of Government, as the distinguished Senator from Illinois has stated. 
We are continuing to have the cost of Government rise, while the 
accountability of Government falls. This is of great concern to me. It 
concerns me that the private contractors are under no code of ethics 
whatsoever. They have no Government code of ethics and they are out 
there in a competitive work force trying to get the Government grants 
in order to perform services that our Government should perform in the 
first place.
  The PRESIDING OFFICER. The Senator's time has expired.
  Mr. PRYOR. Mr. President, I ask unanimous consent to proceed for 30 
more seconds.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. PRYOR. This area of privatizing income tax collections is 
something that I think goes far beyond anything that I have seen in 
this whole area of contracting. I urge the conferees to stay with the 
decision of the Senate.
  Mr. SIMON. I thank the Senator from Arkansas. I agree with him 
completely.

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