Pay Up or Else
The federal government is carrying an estimated $20 billion in overdue private loans on its books, money borrowed by Americans for a variety of purposes and never repaid. In 1984 Congress decided that enough was enough. As part of the Deficit Reduction Act it ordered a two-year experimental program to try to recover as much of this debt as possible. That effort is entering a vigorous new phase as the Internal Revenue Service begins processing 1985 tax returns.
About 750,000 people are going to find their tax refunds reduced or wiped out by the IRS in partial or whole settlement of their debts to the Treasury. The names of by far the greatest number of these debtors--nearly 658,000--were given to the IRS by the Department of Education, which over the years has been stung particularly hard on some loans made for student higher education. Of the $1.6 billion owed by the defaulters who have been targeted this year, fully $1.3 billion involves long delinquent student loans.
In addition, the IRS has been asked to act as the collecting agent for credit given by the Department of Housing and Urban Affairs, the Small Business Administration, the Veterans Administration and the Agriculture Department.
The loan defaulters who lose their tax refunds can’t plead lack of fair warning. By law, their names have gone to the IRS only after repeated efforts were made to collect on their debts through normal channels. As a final step the defaulters were given 60 days’ notice before their cases were referred to the tax service. These efforts would seem to pretty well establish that failure to repay has not been due to ignorance, inadvertence or oversight, but rather to deliberate intent to evade an obligation.
Joseph Wright, the deputy director of the Office of Management and Budget, notes that the very threat of seizing or reducing tax refunds has been an incentive in getting some scofflaws to pay up. Certainly the use of the tax system to collect non-tax debts is likely to prove a lot cheaper and more productive than other ways of legally pursuing deadbeats.
That lesson is going to be driven home over the next three or four months to a large number of Americans whose government once considered them worthy credit risks. Having been asked repeatedly to pay up, they are now going to be forced to do so. We think that this is reasonable, efficient and, above all, just.
