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Detroit Mayor Considers Privatizing Tax Collections

1 min readBy: Mark Robyn

The Detroit Free Press reports that Mayor Dave Bing is considering turning city taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. collections over to a private collections agency. Bing is under pressure to cut the city’s estimated $250 to $350 million budget deficit and is hoping that private debt and tax collection will help the city cut costs. According to Bing, the city is at risk of running out of cash in the next 60-70 days, and he has proposed a 10% municipal wage cut and cuts in services such as busing. Supporters of the privatization plan say that the private sector can accomplish tax collection more efficiently, saving the government millions of dollars. As expected, the government employee union strongly opposes the proposal.

Such a controversial program has been tried at the federal level. The IRS recently ended its private debt collection program. Officials said that IRS employees have more flexibility in handling cases since private collectors cannot constitutionally make judgments concerning what taxpayers owe or how best to treat individual cases.

The Taxpayer Advocate Service is the independent organization within the IRS whose employees assist taxpayers experiencing economic hardship, who are seeking help in resolving tax problems, or who believe that an IRS system or procedure is not working as it should. Nina Olson heads up that organization and has spoken out against private tax collection in the past. In a 2005 podcast with the Tax Foundation, Olson discussed various reasons why private tax collection is a bad idea. She says that there is no such thing as a simple tax case and that only the IRS has the authority to make judgments in those grey areas. She says outsourcing collections only creates a middleman that must defer to the IRS in making substantive collections decisions. Check out that pocast here.