One construction company that won multiple awards of money under President Obama's 2009 stimulus program was delinquent on its federal tax bill to the tune of $700,000, even as a company executive was blowing hundreds of thousands of dollars at casinos.
Yet another company failed to pay taxes, entered into a payment plan with the Internal Revenue Service, and then repeatedly defaulted on that agreement - and still won stimulus contracts worth more than $1 million, according to a Government Accountability Office report released Tuesday.
All told, government investigators found that during the period they examined, one out of every six stimulus contract or grant dollars went to a known tax cheat, according to Sen. Tom Coburn, an Oklahoma Republican who, along with several colleagues, requested the GAO review.
The review found that at least 3,700 stimulus recipients owed a total of more than $757 million in taxes, but were awarded $24 billion in stimulus money.
"Average Americans are likely wondering why we gave such a huge amount of federal money to tax cheats when our national debt is more than $14 trillion," Mr. Coburn said. "That $24 billion went to such people looks like we are rewarding people for potentially criminal behavior."
GAO said the number of cheats and the total dollar amount of unpaid taxes is likely higher than their findings because IRS databases don't record amounts owed by taxpayers who have not filed returns or who have not been assessed delinquent payments by the IRS.
Federal law does not bar tax cheats from getting contracts, nor does it allow the IRS to share taxpayer information. It does allow the government to dock payments to cheats in order to make up their missing taxes, but only up to 15 percent.
Daniel I. Gordon, the procurement administrator in the Office of Management and Budget, said the Obama administration is trying its best to limit awards to cheaters, but that Congress needs to give the government more authority to let the IRS share data with the agencies that dole out the money.
He also said the president's 2012 budget calls for giving the IRS authority to levy up to 100 percent of federal payments made to vendors that owe delinquent taxes.
Complicating the process, the GAO said much of the money couldn't be recouped by the levy program because the stimulus grants were first made to states, localities or prime contractors, which then awarded them to subcontractors.
GAO said that loophole must be closed.
The government investigators took a closer look at 15 stimulus recipients whose histories raised red flags. The 15 were responsible for $40 million in unpaid taxes, and had all engaged in potentially criminal activities, including withholding payroll taxes from employees but never sending the money to the IRS.
All 15 have been referred to the IRS for follow-up.
The tax-cheat problem is not unique to the stimulus program, but it has brought the matter into focus again.
The Democrat-controlled Congress passed the American Recovery and Reinvestment Act in February 2009 in an effort to boost the struggling economy, and Mr. Obama promised the money would be responsible for funding 3.5 million jobs.
Since then, though, the stimulus price tag has grown to $821 billion while producing mixed results on the job front.
The unemployment rate topped 10 percent, despite the administration's projections that it would never go above 8 percent. The Congressional Budget Office says the spending is responsible for supporting 3.5 million jobs at best, but it's also just as likely that it supported 1.3 million jobs - well short of the Obama administration's projections.
Seeking to renew attacks regarding the program, House Republicans' campaign arm, the National Republican Congressional Committee, used the GAO report's findings Tuesday to attack Democrats who voted for the stimulus.
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