By now, readers of this space are well aware of my skepticism about the efficiency of any program that is government-run. No matter how well-intentioned, they never turn out quite the way they're presented to those charged with initial approval.

Although I'll admit a guilty pleasure in reading investigative articles about how federally purchased items such as screwdrivers and toilet seats often run comfortably into three digits, the longer-range problems as a result of government incompetence are usually far more sobering and far-reaching.

Although privatization in my opinion have far more merits than drawbacks, it will be interesting to monitor the progress of the Internal Revenue Service's plan to turn over collecting delinquent taxes to a trio of private debt collection agencies. Over the next two weeks, it will hand over data on 12,500 taxpayers, each of whom owe $25,00 or less in back taxes.

In Part II, which will be phased in sometime in 2008, the IRS intends to contract with up to 10 firms and distribute about 350,000 past-due tax accounts.

In what is probably a rosy estimate, the agency expects the private firms collect to an additional $1.4 billion in back taxes. Of that figure, the collection agencies will keep roughly $330 million -- between 22 cents and 24 cents on the dollar.

Not surprisingly, the effort has critics -- lots of them.

Opponents, most notably Taxpayer Advocate Nina B. Olson, have cited the potential for abuse and corruption, and predictably the employee union at the Treasury Department isn't thrilled with the program either.

Last week, a New York Times columnist, apparently pining for bloated bureaucracies and federal waste under the auspices of politicians he obviously supported, berated the idea of privatizing tax collection.

In a stretch a rubber band the size of the Verrazano Narrows Bridge would have trouble matching, the writer, an economist of no minor pedigree, compared the strategy to a 16th century practice of subcontracting private "tax farmers," whose honesty and methods in collection wouldn't have been out of place on "The Sopranos."

I wonder about his view on government-run audits.

But I digress.

Will the privatized collection program cost more than, say, simply hanging out a "Help Wanted" shingle for more tax collectors?

The short answer is yes.

But the privatized program ventures beyond the boundaries of federal budget rules, because the funds spent to hire the private collectors are apparently, according to the IRS, classified as a "discretionary expense" - which lately has fallen under the ax in the budget-cutting process.

Additionally, the privatized program falls outside the budget rules because, save for the start-up costs, the collectors will be paid from the proceeds.

According to the IRS, some protections already have been put in place, including limiting collections contact to the telephone or mail and instructing taxpayers to send the payments directly to the Treasury, as opposed to the private collection agencies.

I guess it boils down to this: A privatized tax collection program isn't immune from corruption and cronyism any more than those overseeing trash collections, linen services or cigarette vending machines.

But a more accurate barometer would be to evaluate the program in two years and determine its merits, or lack thereof.

Two years?

In government time that's almost overnight.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access