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WASHINGTON, May 19 (Reuters) - A proposal to make the U.S. Internal Revenue Service hire private companies to collect unpaid taxes is dividing Senate Democrats, with some warning it could lead to harassment of low-income people, but others saying it would boost tax revenue.
New York Democrat Charles Schumer recently offered up the plan, which would raise an estimated $4.8 billion in new tax revenue over 10 years. Schumer's state is home to two of four firms that would likely be hired to do IRS collection work.
Cosponsored by Republican Pat Roberts of Kansas, Schumer attached the bipartisan proposal to a broad Senate tax bill meant to renew more than 50 temporary tax breaks, mostly for corporations, known as the extenders. By raising new revenue, the proposal would help offset the costs of the tax breaks.
But Maryland Senator Benjamin Cardin and two other Democrats are trying to remove Schumer's proposal from the extenders bill.
"Previous attempts at instituting similar private tax collection programs resulted in net revenue losses and harassment complaints from taxpayers," a Cardin spokeswoman said Monday in a statement.
A Schumer spokesman said: "We have crafted a bipartisan plan that has the safeguards necessary to protect taxpayers."
Cardin faces an uphill battle to remove the debt collection proposal in part because it has broad support from Republicans, tax lobbyists said.
The proposal "has a very strong chance of staying in" the extenders bill, said Floyd Williams, the former IRS chief of legislative affairs who is now a lawyer at a lobbying firm that does not represent debt collection companies.
The proposal would let collection firms target only long-standing tax delinquencies. Taxpayers already working with the IRS to repay their taxes, as well as individuals facing certain hardships, would be exempted.
The IRS ended a previous private tax debt collection program in 2009. IRS Commissioner John Koskinen said earlier this month that the three-year program lost money and called it "an inefficient way to proceed."
In a report to lawmakers last week, Nina Olson, the National Taxpayer Advocate, who defends taxpayers' rights as the ombudsman within the IRS, said the Senate's proposal is a potential "bulls-eye on the backs of low-income taxpayers."
Almost 80 percent of people who would be targeted by these private collection companies are low income, the report said.
Of the new revenues to be raised, $1.2 billion would go to the collection firms; $1.2 billion to the IRS; and $2.4 billion to federal budget coffers, said the Congressional Budget Office.
Four debt firms are already under contract with the Treasury Department, which includes the IRS, to collect delinquent student loans and improper healthcare payments.
One of them, Performant Financial Corp, has said it stands to gain from a renewed IRS debt collection program. (Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh and Lisa Shumaker)