Senators: Tax delinquency issue larger than stimulus

“To be fair, the conditions that led to this latest expose are not unique to the Recovery Act program,” Coburn, a critic of the stimulus package, said in prepared remarks. “Rather, it is symptomatic of a larger problem that has been kicked down the road for years.”

The GAO, known as Congress’s investigative arm, signaled in its audit that the problem of stimulus funds going to those with outstanding tax bills was probably broader than it had identified. 

In all, investigators looked at 63,000 taxpayers and organizations, finding that close to 6 percent of them owed back taxes. Roughly a third of the tax debts were from before 2003, well before the stimulus package was enacted. 

The report also looked at 15 individual cases, including one where a nonprofit owing more than $2 million in payroll taxes was awarded more than $1 million in stimulus funds. The nonprofit’s chief executive was also known to have made numerous trips to a casino. 

In another case, a security company cited for labor violations and dubbed uncooperative by the IRS received a contract worth more than $100,000, despite owing more than $9 million in taxes.

{mosads}According to GAO, federal law does not ban those owing taxes from getting contracts or grants, and the IRS is barred from giving federal agencies taxpayer information without that person’s or organization’s consent. 

Daniel Gordon, the administrator for federal procurement policy for the Office of Management and Budget (OMB), told the subcommittee at Tuesday’s hearing that it could be helpful to loosen the reins on the IRS, saying in his prepared remarks that would allow the tax collector to “more effectively alert agencies if would-be contractors are misrepresenting their tax status.” 

About $315 million of the tax debt GAO found was not subject to a levy program that allows the government to withhold some payments to help offset a tax delinquent’s bill — because the stimulus funds had been handed out by a state or prime contractor to a subcontractor. 

At the hearing, Levin suggested that subcontractors should be forced to disclose to prime contractors whether they owed back taxes, and that the federal government needs to push harder to debar tax delinquents from getting contracts. 

Sens. Max Baucus (D-Mont.), the chairman of the Senate Finance Committee; Orrin Hatch (R-Utah), the panel’s ranking member; and Chuck Grassley (R-Utah), the ranking member on the Senate Judiciary Committee, also called for the report from the GAO.

The stimulus, which cost an estimated $787 billion when Congress approved it in 2009, is credited by the White House and most Democrats with preventing a deeper recession. Republicans, however, railed against the measure, noting that unemployment and the nation’s debt rose after it was approved. 

In a statement, Hatch had said the report further illustrated that the stimulus was “fundamentally flawed.” For his part, Coburn largely refrained from attacking the package itself at the hearing.