The Huffington Post Investigative Fund has revealed quite a story about financial firms pursuing a new line of business: Purchasing citizens' property-tax debt. If someone owes their city $1,000, banks can bid to pay the city for the debt. Suddenly, the taxpayer owes that money to the bank, which pursues him or her for repayment while charging fees and interest and can even attempt to seize the delinquent taxpayer's home if they don't pay up. Even awesomer, some banks are actually securitizing that debt and selling it to investors. While this is a business practice that has been followed by local debt collectors for years, the presence of large investment firms is new -- and they're doing their best to hide their involvement behind a series of front companies.
Some are defending this practice by noting that without severe penalties, people would certainly find ways to put off paying their tax debt. That's certainly true, as far as it goes, but paying your civic obligation shouldn't be an opportunity for private interests to profit. The HuffPo investigation showed that people were frequently threatened with foreclosure by sums as small as a few hundred dollars. That's not right, and state attorneys general are already looking into abuses by these firms. While I'm not immune to arguments that the state can delegate certain duties to private firms, taxation is a power that ought to be solely in the government's hands, if not for practicality's sake, then for principle.
-- Tim Fernholz
