Omnibus Appropriations Act, 2009
Floor Speech
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Mr. DURBIN. Mr. President, Senator Grassley and I do not see eye to eye on this issue, and I wish to state for the record why this section was included in the appropriations bill.
First, it is hard for me to follow his argument that because the Finance Committee created a permissive arrangement where the Internal Revenue Service could enter into contracts with private companies to collect IRS debts, it somehow takes away the authority of the Appropriations Committee to even address this issue. It is a permissive statute. It does not require the IRS to sign up a private company. When the IRS does exercise the right under that statute, it involves Federal expenditures, appropriations.
My provision in this bill is not tax language. My provision in this bill says: None of the funds in this bill may be used to enter into, renew, extend, administer, implement, enforce or provide oversight of such a contract. We go directly to the spending aspects. There is no committee violation here. This is our jurisdiction.
Senator Grassley's committee, the Finance Committee, does not pay for these agencies. The appropriations process does. So we are exercising our authority--no violation of committee jurisdiction, which, of course, means little to those following this debate but means a lot to those of us who serve in this Chamber.
Let me tell you what this is about. This is about collecting debts owed to the Federal Government, specifically the Internal Revenue Service, and the Finance Committee said: Let's see, if we let private collection agencies do it, whether they can save us money and do it more effectively. That is a legitimate inquiry. It is one I would be open to. I think it is reasonable to see if that might happen.
Well, let me tell you what has happened.
After the Federal Government spent $71 million in start-up costs to allow two companies, one in Iowa and one in New York, to move forward on this first phase of outsourcing programs, they started operations in September 2006. Presently, the IRS has contracts with two companies--one in Senator Grassley's State of Iowa and one in the State of New York--for the collection of unpaid Federal income tax liabilities. The IRS is currently in the process of determining whether to exercise the option to extend these contracts for a 1-year period. That is why our language came in and said: Stop, don't do it. And I will explain why. There are a host of reasons.
The collection of Federal taxes, of course, is a core Government function, but I am not going to argue with the premise that we should see if we can do it with more cost efficiency by using private collectors. It is true that the information we are talking about here is sensitive information. So the IRS, of course, has access to more information about the debtors than the private collection agencies, and we want to always make certain we protect the confidentiality of certain information all American citizens share with their Government and don't believe it is going to be broadcast to any private company. So there is a natural tension here between the efforts of a private business making money collecting back taxes and the Internal Revenue Service, which has more information at their disposal in making evaluations but also a higher responsibility and duty in protecting the privacy of taxpayers with the information they provide our Government.
Let's get down to the bottom line. Using private companies to collect taxes is far more costly than having qualified, trained IRS employees do the work. I couldn't say that without evidence to back it up. Since the inception of this private collection program, the Internal Revenue Service has spent approximately $80 million to set it up and administer it and we have received back as taxpayers $60 million in net revenue, after paying these private companies in Iowa and New York $13 million in commissions--$13 million to receive back $60 million. According to the IRS, private collection agencies were originally projected to bring in $65 million in fiscal year 2007 and up to $127 million in fiscal year 2008. So what happened? Instead, they raised $32 million in 2007--less than half of what we expected--and only $37 million in gross revenue in fiscal year 2008, about a fourth of what we expected. So their performance was dramatically less than promised, dramatically less than the IRS anticipated when they entered into these contracts.
The IRS has not identified any best practices from these private tax collectors, which was one of the stated intentions of the program. These private companies were supposed to show us the way to collect money more effectively. So far, they haven't, and they have fallen down in their own goals in terms of collection of back taxes. The private companies have collected approximately one-half or less of what they were supposed to bring in, but they continue to be paid 21 to 24 percent in commissions on the easiest cases of all, totaling $13 million we have paid to these private companies.
Now, Senator Grassley made a reference to student loan collection. Of course, he should acknowledge, if he makes that reference, that we cap the commission for student loan collection at 16 percent. Instead, these companies in Iowa and in New York are being paid 21 to 24 percent of back taxes collected, so they are getting a premium and they are collecting far less than they said they would.
The story gets more interesting.
The IRS already has a significant collection infrastructure: thousands of trained employees. I heard Senator Grassley make negative references to unions. That is his point of view. I don't share it, but I do believe union employees should be given an opportunity to be compared in their collection practices with those in private business. Let's be fair about this. This was an experiment, and the premise was that if you just turn it over to a profit-making, private company, it is going to do a better job and it will be cheaper for the Government--cheaper than relying on IRS employees who may or may not be members of the union to which Senator Grassley referred. The automated collection system in the Internal Revenue Service is a critical collection operation. It collects nearly $1.5 million per employee, per year. It works. So the employees at the IRS are collecting the back taxes as they promised they would.
Now, listen to this: The Internal Revenue Service National Taxpayer Advocate, Nina Olsen, has estimated that IRS employees collect $32 for every $1 spent, compared to collections by the private agencies of $4 for every dollar given to them in commissions--8 to 1. If this is about comparing the dollar cost of collecting back taxes, the IRS employees win this 8 to 1. How in the world can anyone justify continuing subsidizing private collection agencies that can't do the job as well as the employees of the Internal Revenue Service?
According to the ``Taxpayer Advocate Annual Report to Congress'' in December 2008, the IRS automated system of collection--using IRS employees--collected more than three times as much as the private collectors did. They went on to say that this automated collection system in the IRS collected 13 percent of the balance due, while private collectors collected 4 percent of the balance due. By every tangible measure, the employees of the IRS are doing a dramatically better job than those in the private collection agencies.
These agencies have failed to meet the goals they set in terms of the amount of money they collect and how much they would charge the Government for all the years they have been doing this--in the 2 straight years. Is it any wonder we have questioned whether we should continue this? This is a subsidy--a subsidy to private companies that have not met the burden they said they would meet to prove to the taxpayers theirs was a more cost-efficient way to collect back taxes.
The last argument made by Senator Grassley is an interesting one. He argued--even though he opposed President Obama's stimulus package--that we needed to keep subsidizing these private collection agencies because we need to create more jobs in America. In other words, this would be Senator Grassley's private stimulus package for this company in Iowa. Well, I would say to the Senator that, sadly, with the state of this economy, collection agencies shouldn't have any problems finding work to do. I just don't think the American taxpayers ought to be subsidizing them. I think basic Midwestern values suggest to us that we have experimented and the experiment results are in. This has turned out not to be a good investment of taxpayers' money. As the chairman of the subcommittee that has to pay for this, I can't justify it. I can't justify it for New York or for Iowa or for any State. We tried this experiment in good faith, and the private collection agencies failed to come through as promised.
Let's put the money, as I suggest in this appropriations bill, into the trained employees, with the automated collection system, who are bringing back, by a margin of 8 to 1, more back taxes than these private companies in Iowa and New York. I believe that is reasonable, and I find it hard to understand how many of my Republican colleagues who criticize this Omnibus appropriations bill for wasting money would vote for the Grassley amendment which would continue the subsidy--wasting taxpayers' dollars--with private collection agencies that have not been as effective as the Internal Revenue Service.
Until these private companies can prove they can do the job better, do it more efficiently, do it at a lower cost, there is no reason we should continue this subsidy. A personal stimulus bill for a company in Iowa and a company in New York is something we can ill afford to do at this moment when we are trying to deal with the costs of this Government and bringing them under control.
The Omnibus appropriations bill increases funding for the IRS with a boost of over $337 million in enforcement activity. With these enhanced funds, the IRS will be hiring new employees who can do this work efficiently, as they have proven time and time again. They have the tools, they have the options the taxpayers have a right to expect, and they will protect the privacy of the taxpayers in the process. Section 106, which Senator Grassley addresses, will ensure that appropriated funds for tax collection work will be put to optimum use within the agency rather than being diverted to outsourced Government work, which has shown that it cannot meet its promises of reducing the cost of Government and increasing collections. We know it works. Let's stick with it.
I yield the floor.
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