[Congressional Record Volume 141, Number 152 (Wednesday, September 27, 1995)]
[Senate]
[Pages S14394-S14396]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              TAX FARMING

  Mr. PRYOR. Mr. President, yesterday, in the New York Times, on page 
1, an article was written by Robert D. Hershey, Jr. I would like to 
extrapolate a few lines from this particular article, not only to bring 
it to the attention of our colleagues in the Senate, but also to bring 
it to the attention of the conferees who are now dealing with certain 
appropriations bills in conference at this time. That particular 
conference is certainly on the Treasury, Postal Service, and general 
Government appropriations bill.
  There is stuck in this appropriation a sum of $13 million. It does 
not sound like a lot when we start thinking about the billions and 
billions that we discuss on the floor of the U.S. Senate, but a $13 
million appropriation to initiate a program to utilize private counsel 
law firms and debt collection agencies in the collection activities of 
the Internal Revenue Service, as we know it, the IRS.
  The first paragraph of Mr. Hershey's article in the New York Times 
yesterday states:

       Congressional Republicans are poised to pass legislation 
     requiring the Internal Revenue Service to turn over some debt 
     collection to commercial interests, thereby giving certain 
     private citizens access to confidential taxpayer information 
     for the first time. . .. The Republican initiative, which 
     would be limited initially to a pilot program, has raised 
     alarms throughout the agency. ``I have grave reservations 
     about starting down the path of using private contractors to 
     contact taxpayers regarding their delinquent tax debts,'' 
     Margaret Milner-Richardson, the Commissioner of the I.R.S., 
     said.

  This was a statement written in a letter signed by Margaret Milner-
Richardson, the Commissioner of the Internal Revenue Service.
  For the last several years I have been one who has complained, I 
think fairly substantially and often, about some of the activities, and 
the heavyhanded activities, of the Internal Revenue Service. But I can 
say without reservation, this is an issue which Margaret Milner-
Richardson, the Commissioner of the IRS, and myself, agree on 100 
percent.
  On the 12th of September, I, along with Senator Alfonse D'Amato of 
the State of New York, wrote a letter to the conferees relating to this 
particular conference, which is now in session. Senator D'Amato and 
myself stated in the third paragraph, about this particular provision 
that now exists in the debate between the conferees--we wrote the 
following:

       We are writing to express our concern regarding the 
     possibility of inclusion of the House provision in the final 
     bill and respectfully request your assistance to eliminate 
     any provision allowing private bill collectors to collect the 
     debts of the American taxpayer.
       For over 200 years, when the Federal Government has imposed 
     a tax, it has also assumed the responsibility and the blame 
     for collecting [that tax]. In fact, we have an obligation to 
     ensure that the privacy and the confidentiality of every 
     American taxpayer is protected. Contracting out the tax 
     collection responsibilities of government would be in 
     contradiction of that duty, and would no doubt put the 
     privacy of all American taxpayers in jeopardy.

  Senator D'Amato and myself continue by stating to the conferees:

       While we are very concerned about the impact of the House 
     provision on the rights of American taxpayers in their 
     dealings with these private bill collectors, the Commissioner 
     of the Internal Revenue Service has also raised serious 
     questions about the provision. We, therefore, urge you to be 
     persistent in your efforts to keep such a provision out of 
     the final conference report.

  The article, written in the New York Times yesterday, further States:

       Such concerns are in spite of the bill's requirement that 
     the private debt collectors must comply with the Fair Debt 
     Collection Practices Act and ``safeguard the 
     confidentiality'' of taxpayer data.

   Mr. President, I have seen a lot of ideas in some 17 years in the 
Senate. But I have never seen a worse idea, an idea that was so 
misdirected, in my 17 years of service, as one that is being proposed 
to become the law of the land.
  I would like to pose, also--or at least to make an observation. This 
is not a new idea of basically farming out some of our tax collections 
to the private sector. But I would say, in over 200 years of our 
Federal Government, we have never turned over the business of 
collecting taxes to the private sector. But I must point out, as I did 
in a floor statement on August 4, in the U.S. Senate, that this is a 
dubious practice and it is as old as the hills, and it dates back to at 
least ancient Greece. This practice of private tax collection even has 
a name. It is called, ``tax farming,'' and its modern history is 
chronicled in a book authored by Charles Adams, a noted lawyer and a 
noted history professor. The book is named, ``For Good And Evil, The 
Impact of Taxes on the Course of Civilization.''
  In this book, Charles 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. He 
further notes that a respected lady of Cos around 200 B.C. wrote, 
``Every door trembles at the tax farmers.'' In the latter Greek and 

[[Page S 14395]]
Roman world, no social class was hated more than the tax farmer. The 
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 as a monster of 
     oppression in many forms in Western civilization for over 
     2,500 years, until it finally met its demise after World War 
     I. Tax farming brutalized prerevolutionary France. The French 
     court paid the price during the reign of terror when the 
     people were incensed. They rounded up the tax farmers, 
     tried them in the people's courts and condemned the tax 
     farmers to death. Accounts of this time tell of the 
     taxpayers cheering while the heads of the tax farmers 
     tumbled from the guillotine.

  In the 17th century, Mr. President, under Charles II in England, the 
King imposed a hearth tax assessing two shillings per chimney for each 
house. To collect it, the King did not have civil servants responsible 
to the King to collect from these private families. But he named 
individual tax collectors. They called them ``chimney men.'' They went 
throughout England. These chimney men were ruthless, and they were 
hated by the people of England. The hatred of the privately collected 
tax helped depose Charles' brother, James II. And as soon as the new 
monarchs, William and Mary, were installed, the House of Commons 
abolished the tax ending a bond of slavery upon the whole people that 
allowed every man's house to be entered and searched and at the 
pleasure of people unknown to him.
  Clearly, Mr. President, history has taught us that contracting out 
the tax collection responsibilities of a democratic government is not a 
good idea.
  These are the questions that I would like to respectfully pose to our 
colleagues from the Senate and the House who now make up the conference 
on this particular issue and who are now debating what issues to 
include and to exclude. These are the questions that I respectfully 
think should be asked.
  Who will these people be?
  Which debt collection services will be hired?
  How will they be hired?
  Who will hire them?
  Who will train them?
  Who will oversee them?
  Which taxpayers' cases will they work on?
  What arena of confidentiality?
  What standard, I should say, of confidentiality will be imposed upon 
these private debt collectors as they search through our private tax 
records?
  What type of taxpayer information will be made available to these tax 
collectors?
  How will that information be safeguarded, and how will the security 
and the privacy of these issues be retained?
  How, Mr. President--and what a key question this is--are these 
private bill collectors going to be paid? Will they be paid 25 percent, 
50 percent, and will not this actually amount to a bounty hunter 
situation that we are creating within the Internal Revenue Service?
  In 1988, I sponsored, with the help of many of my colleagues, the 
Taxpayer Bill of Rights. It was passed into law. One of the provisions 
that we were proudest of in the Taxpayer Bill of Rights No. 1--and now 
we hope to expand it this year into the Taxpayer Bill of Rights No. 2--
in the Taxpayer Bill of Rights No. 1 was a provision that the Internal 
Revenue Service could no longer use quotas in which to promote or 
demote collection agents within the Internal Revenue Service. We said 
you have done it in the past but that day is over, and no longer can an 
IRS collection agent have his job or his salary or his position 
basically based upon how much he is collecting.
  So, Mr. President, what we have is we may be on the eve of making an 
enormous mistake. It could be a mistake that we could never fix. I am 
very hopeful that the conferees on the Treasury, Postal, and general 
Government appropriations bill will take heed and will realize what 
history has to teach us about private tax collectors being hired to 
collect Federal debt.
  Mr. President, I ask unanimous consent that the letter dated 
September 12 sent by Senator D'Amato and myself to Senators Shelby, 
Kerrey, and the other conferees be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                  U.S. Senate,

                               Washington, DC, September 12, 1995.
       Dear Senator Shelby and Senator Kerrey: Thank you for 
     accepting our amendment to the Treasury, Postal Service, and 
     General Government Appropriations bill which struck an 
     appropriation of $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.
       A similar provision has been included in the final version 
     of the House Treasury, Postal Service, and General Government 
     Appropriations bill, which, as you know, will be a matter to 
     be considered by House and Senate conferees at conference.
       We are writing to express our concern regarding the 
     possibility of inclusion of the House provision in the final 
     bill and respectfully request your assistance to eliminate 
     any provision allowing private bill collectors to collect the 
     debts of the American taxpayer.
       For over 200 years, when the Federal Government has imposed 
     a tax, it has also assumed the responsibility, and the blame, 
     for collecting them. In fact, we have an obligation to ensure 
     that the privacy and confidentiality of every American 
     taxpayer is protected. Contracting out the tax collection 
     responsibilities of government would be in contradiction of 
     that duty, and would, no doubt put the privacy of all 
     American taxpayers in jeopardy.
       While we are very concerned about the impact of the House 
     provision on the rights of American taxpayers in their 
     dealings with these private bill collectors, the Commissioner 
     of the Internal Revenue Service has also raised serious 
     questions about the provision. We, therefore urge you to be 
     persistent in your efforts to keep such a provision out of 
     the final conference report.
       If we may assist you in any way, please do not hesitate to 
     call on us or our staff.
           Sincerely,
                                                      David Pryor.

  Mr. PRYOR. Mr. President, I ask unanimous consent that the article 
which I made reference to a few moments ago dated Tuesday, September 
26, in the New York Times written by Mr. Robert D. Hershey, Jr., be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                  G.O.P. Wants I.R.S. To Use Outsiders


           bill collectors would have access to taxpayer data

                      (By Robert D. Hershey, Jr.)

       Washington, DC, Sept. 25--Congressional Republicans are 
     poised to pass legislation requiring the Internal Revenue 
     Service to turn over some debt collection to commercial 
     interests, thereby giving certain private citizens access to 
     confidential taxpayer information for the first time.
       The agency's appropriations bill, now stalled in a Senate-
     House conference over an unrelated issue, would provide $13 
     million for the I.R.S. to test whether private bill 
     collectors could do a better job than the agency's own 
     employees, even though they would be denied such governmental 
     powers as the ability to seize property.
       The bill suggests a regional experiment, which would be 
     likely to focus on individual returns, and directs that small 
     collection agencies--perhaps even individual lawyers--be 
     allowed to participate.
       The Republican initiative, which would be limited initially 
     to a pilot program, has raised alarms throughout the agency. 
     ``I have grave reservations about starting down the path of 
     using private contractors to contact taxpayers regarding 
     their delinquent tax debts,'' Margaret Milner Richardson, the 
     Commissioner of the I.R.S., said.
       In addition to privacy concerns, Ms. Richardson contends 
     that the use of private collectors could further undermine 
     public perceptions of the fairness of Federal tax 
     administration.
       But Congressional Republicans, sensing a negative public 
     perception of the agency, are pressing the plan on a number 
     of fronts. They rejected the Clinton Administration's request 
     for an I.R.S. budget increase of nearly 10 percent, to $8.23 
     billion, deciding instead to cut the I.R.S. budget almost 2 
     percent.
       By a widely accepted rule of thumb, additional enforcers 
     bring in five times their salaries. But Republicans, intent 
     on reining in a symbol of big government, do not accept the 
     argument of I.R.S. officials that spending more on the agency 
     would help meet the goal of a balanced Federal budget.
       Citing findings of the General Accounting Office that 
     I.R.S. collections have slumped about 8 percent since 1990, 
     Republicans led by Representative Jim Lightfoot of Iowa, 
     contend that this reflects the I.R.S.'s ``lengthy and 
     inefficient collection process, which does not incorporate 
     techniques used by the private sector.''
       Others have contended that a lack of diligence has allowed 
     uncollected debts to swell to more than $150 billion.
       Farther down the Republican agenda are plans for an even 
     broader assault on the tax agency. ``The I.R.S. was never 
     meant to be such an intrusive, oppressive presence in 
     American life,'' Senator Bob Dole, the majority leader, told 
     a Chicago audience recently in proposing a radical 
     simplification 

[[Page S 14396]]
     of the tax law that ``would end the I.R.S. as we know it.''
       The attack on its budget has already prompted the I.R.S. to 
     decide on a two-month delay in its Taxpayer Compliance 
     Measurement Program under which it had planned, beginning 
     next week, to select about 153,000 tax returns for intensive 
     audits in a periodic effort to gauge sources of cheating and 
     to develop countermeasures. Accurate targeting of enforcement 
     efforts is crucial since routine auditing has slipped well 
     below 1 percent of individual returns.
       If the agency fails to get a bigger budget than the $7.35 
     billion now scheduled, the I.R.S. will have to cut its 
     112,000-member staff by the equivalent of 7,000 employees; 
     much of this would be by attrition and shorter hours for 
     seasonal workers, Ms. Richardson said in an interview.
       ``No sound business person would not spend money to make 
     money,'' she added, charging the Republican budget-cutters 
     with pound-foolish penny-pinching. ``I think you ought to 
     look differently at the side of the house that raises 
     money.''
       Privatizing the collection of delinquent debt was first 
     proposed in early 1993 by the newly installed Clinton 
     Administration but the idea went nowhere in a Congress then 
     dominated by the President's fellow Democrats. However, many 
     states use private companies to help collect taxes, according 
     to the Federation of Tax Administrators. At least three 
     states--Minnesota, Nevada and South Carolina--already use 
     outsiders to collect money in person. And at least 10 other 
     states hire private agencies to make telephone calls to 
     delinquent taxpayers.
       Moreover, some states, notably Pennsylvania, use private 
     companies routinely to collect current, as opposed to 
     delinquent, taxes.
       The I.R.S. does use private companies for finding, say, the 
     addresses of delinquent taxpayers, spending about $5 million 
     a year for such information, but this does not lead to direct 
     contact with taxpayers by outsiders.
       Frank Keith, an I.R.S. spokesman, said today that the 
     agency had not yet developed any plans to carry out a debt-
     collection test, including what region might initially be 
     involved.
       Among those objecting to the idea was Donald C. Alexander, 
     a Washington lawyer who served as I.R.S. commissioner from 
     1973 to 1977.
       ``Contracting out anything dealing with enforcement is 
     absolutely absurd,'' he said, contending that it was improper 
     for people ``with a stake in the outcome'' to collect the 
     Government's taxes, whether on commission or under a contract 
     they would presumably have an incentive to extend.
       Such concerns are in spite of the bill's requirement that 
     the private debt collectors must comply with the Fair Debt 
     Collection Practices Act and ``safeguard the 
     confidentiality'' of taxpayer data.
       Passage of the legislation is being held up because of an 
     impasse over an amendment from Ernest Jim Istook Jr., an 
     Oklahoma Republican, to severely limit lobbying efforts of 
     nonprofit, and therefore tax-exempt, organizations that get 
     Federal grants.
       The provision in the conference bill that would extend 
     debt-collection authorization to private law firms as well as 
     collection companies is backed by Senator Richard C. Shelby, 
     an Alabama Republican. An aide said the Senator believed that 
     many resources were needed to collect outstanding debt and 
     that privacy concerns ``are overblown by the I.R.S.''
       Mr. Keith estimated that about half the $150 billion of 
     receivables on the books at the end of the fiscal year 1994 
     was collectible; the rest has probably been lost because of 
     bankruptcy, death or other reasons.

  Mr. PRYOR. Mr. President, I ask unanimous consent that a letter sent 
to me dated August 4 written by Margaret Milner Richardson, the 
Commissioner of the Internal Revenue Service, expressing her strong 
opposition and the Revenue Service's strong opposition to even 
considering this practice be printed in the Record.
  There being no objection, the material 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 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 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 
     misgivings 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 institute 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.

  Mr. PRYOR. Mr. President, I have no further items to submit. I have 
no further statement to make. Therefore, I yield the floor.
  I thank the President for recognizing me.
  Mr. DORGAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from North Dakota.

                          ____________________