The Irrational Revenue Service

ONCE UPON a time, the Internal Revenue Service proclaimed that its mission was “to collect the proper amount of tax revenue at the least cost, serve the public by continually improving the quality of our products and services and perform in a manner warranting the highest degree of public confidence in our integrity, efficiency and fairness.”

Today’s mission statement says nothing about cost containment or efficiency. The IRS’ purpose now is “to provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.”

Unless Congress steps in to stop it, the IRS is set to begin implementing a wildly inefficient plan to outsource the collection of past-due taxes from those who owe $25,000 or less. IRS employees could collect these taxes for about three cents on the dollar, comparable to other federal programs’ collection costs. But Congress has not allowed the IRS, which is eliminating some of its most efficient enforcement staff, to hire the personnel it would need to do the job. Instead, the agency has signed contracts with private debt collectors allowing them to keep about 23% of every taxpayer dollar they retrieve. Employing these firms is almost eight times more expensive than relying on the IRS, but, according to IRS Commissioner Mark Everson, it fits in with the Bush administration’s efforts to reduce the size of government.

Over 10 years, the companies hired are projected to collect overdue taxes totaling $1.4 billion, $330 million of which the companies keep as fees. According to the IRS’ own estimates, over those same 10 years, the agency could collect $87 billion in unpaid taxes at a cost of just under $300 million -- if allowed to hire sufficient personnel. In total, utilizing the private sector instead of augmenting IRS personnel would leave in the hands of delinquent taxpayers more than $85 billion owed to the federal government.

If these numbers seem too big to fathom, think of it this way: It is as if you were given the choice of investing $3,300 to make $14,000, or investing $3,000 to make $870,000, and you chose the investment with the higher price and lower return.

What could $85 billion buy?

* More than 11% of the U.S. population under age 18 lacks health insurance. Using data from health insurers, the American Academy of Pediatrics estimates that the cost of a child’s medical care in the U.S. averages less than $1,400 annually. Another $85 billion in the U.S. Treasury would be more than enough to cover the medical needs of all of our 8.3 million uninsured children for seven years.

* In Los Angeles County, more than 80,000 people are homeless on any given day. The cost of ending homelessness in the county has been pegged conservatively at about $28 billion over 10 years. Assuming that this cost is on average roughly equal per homeless Californian, $85 billion over 10 years could end homelessness for about two-thirds of California’s more than 360,000 homeless children, women and men.

* Warren Buffett is giving $30 billion over 20 years to the Bill & Melinda Gates Foundation. If the foundation spends that money on children’s vaccinations, about 30 million children and their families and communities will benefit annually. Worldwide, about 32 million children born each year receive no vaccinations; $85 billion could vaccinate virtually all of them.

* Congress has allocated about $4 billion to shore up the levees devastated by Hurricane Katrina. Experts say closer to $32 billion is needed to reconstruct and reinforce the system to protect the New Orleans area from flooding in a Category 5 storm. That $85 billion would be more than sufficient to accomplish this, with enough left over to spend about $245,000 apiece on rebuilding the approximately 220,000 houses and apartments that were destroyed or seriously damaged by the flooding.

The handful of companies chosen to round up the taxes will profit handsomely, as will the thousands of delinquent taxpayers who will evade collection. We who pay our taxes in full every year are footing the bill. The mission of today’s IRS seems to be safeguarding shirking taxpayers and distributing taxpayer dollars to private corporations. That’s not just mission creep; it’s efficiency, integrity and fairness turned upside down.