Tax Rascal

Tax Mercenaries are a Stimulus Plan

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Tax Mercenaries are a Stimulus Plan

Today the IRS stopped using private tax collectors. That’s right: they won’t let a single tax mercenary collect overdue taxes.

This sounds great — less money spent on expensive government contractors, and less of our private information being leaked out of the government. But is it really the right decision?

The basic argument against private tax collectors is that we’re paying them to go after money people already owe the government. If they’re not afraid of the Feds, the argument goes, why would they fear some random company? If the companies don’t have any way to convince people rationally, it’s a fair assumption that they’re just using dirtier tactics than the IRS, and making 25% of what they collect in the process!

But what if there’s a better way to do the collecting? Keep in mind that this is money the IRS usually doesn’t expect to see again — people know they owe it, and they just won’t pay. So, instead of pressuring them into giving the full amount, why not let these private companies negotiate a discount?

Here’s how it would work. Instead of a contract, there would be an auction: the IRS would sell the right to collect on unpaid taxes, and they’d allow anyone to bid. So if you ‘bought’ $8000 in unpaid taxes for $6000, and settled with the taxpayer for $7000, you’d still make money (though less than the 25% commission mentioned above). At the same time, the IRS would get their funds up front, and the taxpayer would pay something closer to what they could afford.

After a while, people would get a pretty good idea of how much to bid for the right to collect. If they kept underpaying, other folks would get involved (a high return investment, at a time when the Dow can drop 20% in 20 days!? Sign me up!). And if they overpaid, they wouldn’t be able to make money.

So how is this a stimulus plan? Simple: it creates a new kind of investment people can make, at a time when many people are afraid to buy anything other than treasury bills; it brings in new tax revenue, from people who already owe taxes (rather than raising taxes on the rest of us); and it lets people settle their debts and move on with their lives.

For more details on private tax collectors, check out Kay Bell’s excellent summary.

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One Response to “Tax Mercenaries are a Stimulus Plan”

  1. Shame and Fortunes | Tax Rascal Says:

    […] can let private collections agencies take a crack at it. It’s a way for the government to get cash up front, and for everyone to […]

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