Privatize tax collection from overdue states? Here’s why Connecticut lawmakers say not so fast. – Hartford Courant

Governor Ned Lamont’s administration wants to sell the state’s outstanding tax debt to private collection agencies, but the General Assembly isn’t ready to go along with that — at least not yet.

The House of Representatives amended a bill that would have allowed the Tax Services Department to go the private route. Instead, he asked the agency to study how the process works and report back to lawmakers next January.

The revised bill, which is now heading to the Senate, also directed the revenue department and the attorney general’s office to report by next February 15 the amount of outstanding tax payments the state will have. recovered on its own, via lawsuits, in calendar year 2022. .

“While municipalities do it all the time, no state has done it before,” said Rep. Sean Scanlon, D-Guilford, co-chair of the finance, revenue and surety committee, shortly after the vote at the Room.

And while options for improving tax collection should be seriously considered, Scanlon added, “I think our caucus wanted more information.

The amendment replacing permission to use privatized collection with a mandate to provide more information passed by a voice vote in the House with overwhelming bipartisan support.

“Aggressive practices are not unheard of in the world of debt collection,” said Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance committee, which said lawmakers on both sides feared the tactics. that some private collection companies might use.

Many people who have fallen behind on their taxes amid the coronavirus pandemic and soaring inflation weren’t there to cheat the state, she added.

And the Internal Revenue Service’s Taxpayer Advocate Service agrees with Cheeseman.

An independent office within the IRS charged with helping taxpayers, it listed privatized collections as one of the IRS’ “most serious problems” in its 2017 report to Congress.

About 44% of all taxpayers targeted by private collection agencies on behalf of the IRS “are at risk of economic hardship.”

The median income of households targeted by collection agencies who then entered into installment agreements to pay off their debt was $38,021, the report said.

“With unacceptable frequency,” the Taxpayer Advocate Service added, “taxpayers whose debts are assigned to PCAs [private collection agencies] are placed in installment agreements that they cannot afford.

Mark Boughton, Commissioner of Lamont of the Department of Revenue Services, noted that filers earning about $38,000 a year would have little to no income tax in Connecticut, which offers various credits and exemptions to help its most vulnerable households. poor.

But in Connecticut, where the cost of living is much higher than in other states, a family can earn over $38,000 a year and still struggle.

United Way of Connecticut estimates that a household with two adults and two young children needs to earn $90,660 a year to pay for food, utilities, housing, medical and child care, and other living needs. basic survival. He reported earlier this month that 42% of all children in that state live in households that earn less than that threshold.

Boughton also told the CT Mirror in a recent interview that the administration might want to privatize tax collection in a different way than the IRS.

Rather than retain the services of a private agency to collect the money for the state, the department seeks to sell the debt, for pennies on the dollar, to one or more private companies. The state is then out of the process, and it is up to private companies to collect what they can.

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Connecticut has more than $1.2 billion in tax debt — much of it dating back more than 10 years — that it deems uncollectible or unprofitable to pursue.

“We’ve exhausted every method we have to raise those dollars,” Boughton said. He estimated that the Legislature would need to quadruple the department’s 45-member tax collection team for the state to collect enough debt to match the cost of its prosecution.

Boughton also acknowledged that private agencies can employ some tactics that lawmakers are concerned about, including repeated letters, phone calls and attacks on tax offenders’ credit scores. But he also noted that the state can and has used these same methods.

The difference, however, is that the state of Connecticut must meet levels of public reporting and accountability that private collection agencies do not, countered Jeff Gentes, who manages the Fair Lending and Foreclosure Prevention Programs for the Connecticut Fair Housing Center, which opposed the Lamont administration’s proposal.

Private companies often wait after buying the debt, allowing interest and penalties to accrue to maximize their profits, said Gentes, who also co-supervises the Yale Law School Housing Clinic. Only after a large potential return is due will they be faced with debtors, some of whom may be unaware they are overdue or seriously underestimate the amount they owe.

“It’s just loose,” he said. “If you have a problem with one of the residents owing you money, exclude yourself.”

Keith M. Phaneuf is a reporter for The Connecticut Mirror ( ). Copyright 2022 © The Connecticut Mirror

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