House panel to take up bill to block outsourcing of tax collections

The House Ways and Means Committee is headed for a partisan markup Wednesday on a bill to repeal the Internal Revenue Service's authority to use private debt collectors to ease the backlog of uncollected taxes.

The program, authorized by the 2004 corporate tax law, is in a pilot phase, which would end in March. But it has drawn heavy criticism since its inception from Democrats and the Treasury employees' union, who have argued that the use of private companies will lead to abuse and invasions of privacy, and that tax collection is an inherent government function.

The Joint Committee on Taxation estimates that repealing the provision will reduce revenues to the Treasury Department by just over $1 billion over the next 10 years. Under the Ways and Means bill, that cost would be offset by several revenue raisers, none of which by themselves are expected to generate much controversy: an increase in penalties for failing to provide information on returns, an extension to 36 months of the time IRS has to notify taxpayers of delinquency, a tax on individuals who expatriate and a temporary increase in estimated corporate tax payments.

The private collection repeal will be the focus of Republican opposition. At a May hearing, acting IRS Commissioner Kevin Brown said the program is "operating as Congress envisioned" and was an effective tool in collecting back taxes that would not otherwise be collected.

In what some saw as an effort to woo GOP support for the private debt collection repeal bill, Ways and Means Chairman Charles Rangel, D-N.Y., included a provision to delay by one year a 3-percent withholding requirement on government payments that is set to take effect in 2011.

That requirement, slipped in tax extenders legislation last year by then-Senate Finance Chairman Charles Grassley, R-Iowa, has been targeted for repeal by a coalition of federal, state and local contractors, local governments, trade associations like the U.S. Chamber of Commerce and National Association of Manufacturers, and recipients of farm subsidies.

Reps. Kendrick Meek, D-Fla., and Wally Herger, R-Calif., both Ways and Means members, authored legislation to repeal the withholding requirement that has garnered 179 House co-sponsors.

Herger told CongressDaily that, while he was encouraged that Rangel has backed a delay in the withholding requirement, he will not support the debt collection bill in its current form and does not think many other Republicans will either. "Why wouldn't we be going out in a legal, justifiable way, collecting from those causing the rest of our citizens who are paying their taxes to bear a heavier weight on their shoulders?" he said.

Likewise, one member of the business coalition against withholding said it is unlikely the group will push for legislation that essentially kicks the can down the road by a year. At Wednesday's markup, Republicans are expected to offer a substitute that strikes the debt collection repeal provision and lengthens the implementation delay for 3-percent withholding.