House Democrats on Wednesday pushed through legislation to end a program that turns over smaller-scale tax deadbeat cases to private collection agencies.
The White House threatened a veto by President Bush, saying collectors are bringing in needed money.
Opponents said tax collection is the government's responsibility, and the program, approved by Congress in 2004 and begun a year ago, is inefficient and exposes people to harassment by private collectors.
Defenders said it could bring in some $2 billion over the next decade from delinquent cases the Internal Revenue Service otherwise would ignore.
"Terminating this program would result in a loss of significant revenue over the next 10 years," the White House said in a statement warning of a presidential veto.
The bill passed 232-173 and now goes to the Senate. A Senate measure that effectively would cut off money for the program is part of a spending bill waiting action by the full Senate.
But Sen. Charles Grassley of Iowa, top Republican on the Finance Committee and a supporter of the program, said "this bill is dead on arrival in the Senate as far as I'm concerned."
Under the program, the IRS turns over to several private collection agencies those delinquency cases, often in the $5,000 to $10,000 range, that the IRS lacks the manpower to pursue.
Since it began a year ago, collection agencies have taken in $32 million. Of that, about $7 million came from people who paid after getting letters from the IRS that their cases were being turned over for private collection.
The agencies, entitled to commissions of up to 24%, received $5.5 million on the $25 million they collected.
Democrats said the net revenues of almost $20 million contrasted with $71 million in startup costs. "There is simply is no evidence that private tax collectors are more efficient. In fact the opposite is true," said House Majority Leader Steny Hoyer, D-Md.
The National Treasury Employees Union, which has led the campaign to end the program, cited estimates that the IRS could have increased revenues by $1.4 billion had it used that $71 million to hire more agents.
The union's president, Colleen M. Kelley, said approval of the bill "would be a major step forward in stopping this misguided, costly program."
But the Tax Fairness Coalition, which represents the private companies in the program, said there are nearly 2.9 million delinquent taxpayers who may escape notice because the IRS lacks the resources to pursue them.
"Congress is about to leave money on the table by killing a successful and innovative public-private partnership," coalition spokesman Dan Drummond said.