I . . . content myself with wishing that I may be . . . not of that number who are ignorant in spite of experience.
—William Pitt, Earl of Chatham, Speech in House of Commons (1741)
Someone has to get to Treasury Secretary, Steven Mnuchin, and explain to him the facts of Republican life and the Internal Revenue Service. No one is more qualified to do that than Senator Chuck Grassley, of Iowa.
The budget blueprint that was released by DJT in mid-March, proposed reducing IRS funding for the upcoming fiscal year by $239 million. At his confirmation hearing on January 19, 2017, Mr. Mnuchin observed that the IRS had suffered staff reductions of 30% over the last few years, a reduction in staffing not matched in any other agency. He said that such a decrease in staffing “for an agency that collects revenues, this is something that I’m concerned about.” Here is why he should pay a visit to Senator Grassley.
Senator Grassley would explain to Mr. Mnuchin that Republican members of Congress also think collecting taxes is very important, but they have come up with a new old way to do that even with reduced IRS staffing. The Congressional solution involves taking advantage of the skills of the private sector. In order to help Mr. Mnuchin understand what Congress has done, the senator will put it in historical perspective.
He will explain that in 1996 and 1997, at Congress’s behest, the IRS turned over collection of past due taxes to private collection agencies known as PCAs. The program only lasted for two years because it generated no revenue and instead cost the government $17 million. To make matters worse, the PCAs were also violating provisions of the Fair Debt Collection Practices Act in their contacts with delinquent taxpayers. That was the end of that program. But, Mr. Grassley will explain, the Republican dream of tax collection by the private sector did not die.
Senator Grassley would tell Mr. Mnuchin that in 2004, Congress passed the American Jobs Creation Act. That act created jobs by, among other things, handing out collection of delinquent taxes to PCAs. Republican members of Congress projected that the PCAs would be able to collect $1.3 billion in back taxes at a cost of $350 million. The net recovery for the IRS would be eight times greater than if the IRS were undertaking the collections. In 2008, the House Ways and Means Committee held hearings to determine how the program was faring after four years. Mr. Grassley would explain that the committee learned that 85% of the people PCAs contacted owed no back taxes and, accordingly, neither the IRS nor the PCA benefitted from those contacts. He would explain that the PCAs’ cost of collection was $.24 for every dollar collected, whereas the IRS costs were only $.07 for every dollar collected. Mr. Grassley would explain that the IRS had an 11% collection success rate, whereas the PCAs had a 4% success rate. And finally, he would explain to Mr. Mnuchin that the total amount received by the IRS from the PCA efforts was $4.6 million instead of $1.3 billion. He would explain that confronted with those facts, President Obama ended the program and that he, Mr. Grassley, was outraged at the cancellation. He will give Mr. Mnuchin a copy of what he said when the program was canceled. He said that Mr. Obama was cutting “a program that provides jobs to hundreds of people during the middle of a recession, including 60 in Iowa.” He didn’t say anything about the failures.
Mr. Grassley will then explain that the Fixing America’s Surface Transportation Act that was passed in 2015, included a mandate that the IRS hire PCAs to collect back taxes to help fund road improvement projects provided for in the Act. He will give Mr. Mnuchin a copy of his remarks following the passage of that Act. In those remarks he attributed the end of the program in 2009 not to its lack of success, but to the IRS caving in to politics by cancelling the program. Mr. Grassley will then tell Mr. Mnuchin that, responding to the 2015 mandate, the IRS recently hired four companies to collect back taxes. He will tell Mr. Mnuchin that one of the four companies the IRS has hired is Pioneer, a subsidiary of Navient.
Navient is the nation’s largest servicer of student loans. In January 2017, Navient was sued by the Consumer Financial Protection Bureau (CFPB). In its suit the CFPB said Navient created obstacles to repayment by borrowers by providing them with bad information, processed payments incorrectly, didn’t act when borrowers complained, misallocated payments, and cheated borrowers out of their rights to lower repayments. Mr. Grassley will explain to Mr. Mnuchin that Navient denies all the allegations set forth in the lawsuit and will do as good a job for collecting back taxes as other PCAs have done in the past, when helping out the IRS.
After Mr. Grassley finishes his history lesson, Mr. Mnuchin will marvel at the ability of Senator Grassley and his Congressional colleagues to shun empiricism, apparently preferring the bromide that “the third time is a charm.” He will be joined in his bemusement by the American taxpayers who will not only be bemused, they will suffer the consequences of this inexplicable behavior.