Helping Taxpayers
As Americans finish their tax returns, the New Direction Congress is working to make the tax code fairer and simpler and making sure that American tax dollars are spent wisely.
U.S. TAXPAYER DOLLARS BEING SPENT ON A WAR WITHOUT END
BILLS TO BETTER ENSURE RESPONSIBLE USE OF TAXPAYER DOLLARS
THIS WEEK'S BILLS
The Congress is fighting to make the tax code fair and pro-family. The House has passed a budget that makes middle-income tax relief a priority-- calling for extending middle-income tax cuts, including the child tax credit, marriage penalty relief, and the 10 percent tax bracket.
On Tax Day, Americans have the right to ask: why is the Bush Administration continuing to spend taxpayer dollars on an Iraq war with no end in sight and no plan for success? We are spending $10.3 billion a month on the Iraq war or about $4,000 a second. In fact, the income taxes paid by a typical taxpayer cover the costs of only one-half a second of the Iraq war.
U.S. taxpayers are also outraged at the massive levels of waste, fraud and abuse that have been documented in large government contracts to well-connected firms, such as the $45 billion in reconstruction contracts in Iraq. Indeed, there have been more than $10 billion in questioned and unsupported costs in these Iraq contracts.
Meanwhile, Iraq oil revenues are expected to total $40 billion this year – with Americans still funding Iraqi reconstruction. Iraq is expected to have a budget surplus of up to $60 bilion this year, while the U.S. is running large budget deficits.
And because the best taxpayer protection is fiscal discipline, the Democratic-led House has adopted “pay-as-you-go” rules – which Republicans allowed to expire in 2002. These rules were the key to the budget surpluses of the late 1990s and have won praise from every budget watchdog group. Under the Bush Administration, one of the fastest growing parts of the federal budget is debt payments.
On April 15th, the House passed a critical bill to strengthen taxpayer protections from identify theft and tax fraud, close offshore tax loopholes for federal contractors, stop taxpayer harassment by ending the private collection of federal taxes, and expand help for low-income taxpayers.
Final action is anticipated in coming weeks on bills cracking down on no-bid contracts and providing better protection to whistleblowers who reveal waste, fraud and abuse. In April, the House will also be considering a series of other bills to ensure the responsible use of taxpayer dollars, including those to withholding contracts from tax-delinquent companies, stop fraudulent contractors from fleecing taxpayers, and requiring transparency for contractors.
U.S. TAXPAYER DOLLARS BEING SPENT ON A WAR WITHOUT END
- Billions of Taxpayer Dollars Going to Iraq War Every Month. We are spending $10.3 billion a month on the Iraq war or about $4,000 a second, according to the Congressional Research Service. Income taxes paid by a typical taxpayer cover the costs of only one-half a second of the war. Meanwhile, Iraq oil revenues are projected to total $40 billion this year and the Iraqi government is running a budget surplus.
- Massive Waste, Fraud and Abuse in Iraq Reconstruction Contracts. Under the Bush Administration, there has been massive waste, fraud and abuse in contracts to well-connected firms, such as the $42 billion in reconstruction contracts in Iraq. Indeed, according to the Defense Contract Audit Agency, there have been more than $10 billion in questioned and unsupported costs in these Iraq contracts. A key reason is the overuse of no-bid contracts: under this Administration, spending on no-bid contracts has more than doubled.
- A Key Example of Iraq Contract Abuses Has Been Halliburton. Halliburton is an example of the waste, fraud and abuse in Iraq contracts – with Pentagon auditors questioning $1.4 billion of the billings that Halliburton submitted for its Iraqi work in 2003-2005. Halliburton employees testified that the company charged $45 for cases of soda, billed $100 to clean 15-pound bags of laundry, and insisted on housing its staff at five-star hotels in Kuwait. Halliburton officials described the company’s informal motto in Iraq as “Don’t worry about price. It’s cost-plus.”
BILLS TO BETTER ENSURE RESPONSIBLE USE OF TAXPAYER DOLLARS
ENACTED INTO LAW
- Improving Accountability in Government Contracting Provisions (in DOD Authorization Bill.) The FY 2008 DOD Authorization bill (PL 110-181), which the President signed on January 28, 2008, contains several key contracting reform provisions, including instituting new steps for managing and overseeing contracts in Iraq. It also contains provisions to improve the acquisition system and increase the accountability of contractors – both government-wide and at DOD.
PASSED BY HOUSE
- Cracking Down on No-Bid Contracts (H.R. 1362, Rep. Waxman). The Accountability in Contracting Act would crack down on the use of no-bid contracts by federal agencies. Agencies would be required to publicize the justifications for sole-source contracts. The bill also increases transparency and accountability in federal contracting. It was in response to the overuse of no-bid contracts by the Bush Administration in Iraq and the Gulf Coast. This bill was passed by the House by a vote of 347-73 on March 15, 2007; the Senate passed their own version (S. 680) by unanimous consent on November 7; it is anticipated that a compromise version will be finalized in the coming weeks.
- Protecting Federal Whistleblowers (H.R. 985, Rep. Waxman). The Whistleblower Protection Enhancement Act would strengthen protections for federal whistleblowers who report waste, fraud and abuse. Specifically, the measure gives whistleblower protections to federal workers specializing in national security issues, and improves protection for employees of federal contractors who report on waste, fraud and abuse of taxpayer dollars. This bill was passed by the House by a vote of 331-94 on March 14, 2007; the Senate passed their own version (S. 274) by unanimous consent on December 17; it is anticipated that a compromise version will be finalized in the coming weeks.
- Ensuring Independence of Inspectors General (H.R. 928, Rep. Cooper). The Improving Government Accountability Act contains a number of provisions to enhance the effectiveness and independence of Inspectors General. They are the principal watchdogs of the major federal agencies and are responsible for detecting waste, fraud and abuse. The bill was passed by the House by a vote of 404-11 on October 3, 2007; the Senate is expected to pass its version soon.
REPORTED BY HOUSE COMMITTEE
- Withholding Federal Contracts from Tax-Delinquent Companies (H.R. 4881, Reps. Ellsworth and Towns). The Contracting and Tax Accountability Act would withhold large federal contracts from corporations that are delinquent on their federal taxes. In 2004 and 2005, GAO reported that government contractors owed more than $5 billion in unpaid federal taxes. Currently, federal law does not require federal agencies to consider tax debts in making contracting decisions. Similar provisions were included in the FY 2008 Omnibus Appropriations package (PL 110-161); however, these provisions expire at the end of FY 2008. This bill makes these provisions permanent. This bill was reported by the Oversight and Government Reform Committee on March 13 by voice vote; it will be considered by the House on Monday, April 14.
- Closing Offshore Tax Loopholes for Federal Contractors (H.R. 5602, Reps. Ellsworth and Emanuel). The Fair Share Act would close a loophole that allows government contractors to set up sham companies in foreign jurisdictions to avoid paying Social Security and Medicare taxes. It has been recently reported that the defense contractor KBR which has received millions of U.S. taxpayer dollars through its Iraq contracts, has avoided paying its fair share of Social Security and Medicare taxes by creating shell companies in the Cayman Islands. KBR is taking advantage of a tax loophole and prevents its own employees working abroad from being able to qualify for these vital programs. A slightly modified version of this bill has been included in H.R. 5719, the Taxpayer Assistance and Simplification Act, which the House will passed on April 15th.
- Stopping Fraudulent Federal Contractors from Fleecing Taxpayers (H.R. 3033, Rep. Maloney). The Contractors and Federal Spending Accountability Act would create a comprehensive, centralized database that would more efficiently monitor the federal procurement system. This database would list civil, criminal and administrative proceedings concluded by federal and state governments against federal contractors. Currently, with no database, federal contractors that have repeatedly violated the law can still receive contracts. Since 1995, the top 50 federal contractors have paid $12 billion in fines, penalties, restitution, and settlements for more than 350 instances of misconduct. This bill was reported by the Oversight and Government Reform Committee on March 13 by voice vote and will be considered by the House sometime in April.
- Requiring Transparency for Federal Contractors (H.R. 3928, Reps. C. Murphy and Welch). The Government Contractor Accountability Act would require privately-held contractors that receive more than 80 percent of their annual gross revenue from federal contracts to disclose the salaries of their most highly-compensated officers. (Publicly-traded companies already disclose this information.) For example, the management practices, financial statements, and employment policies of Blackwater, which receives nearly all of its revenue from U.S. taxpayers, are tightly held secrets. Currently, as we spend billions on contractors overseas, the taxpayer knows very little about companies reaping this windfall. This bill was reported by the Oversight and Government Reform Committee on March 13 by voice vote and will be considered by the House in April.
THIS WEEK'S BILLS
The Taxpayer Assistance and Simplification Act - H.R. 5719
On April 15th, the House passed the Taxpayer Assistance and Simplification Act. H.R. 5719 is a critical good government tax bill to:
- stop taxpayer harassment by ending the private collection of federal taxes,
- strengthen taxpayer protections from identity theft and tax fraud,
- stop federal contractors from using foreign subsidiaries to evade Social Security and other employment taxes, and
- simplify cell phone tax reporting and expand tax help for low-income taxpayers.
Anti-Taxpayer Harassment Provisions/End IRS Use of Private Debt Collectors
- The bill strengthens government accountability and protects taxpayers by repealing the authorization for the Internal Revenue Service to use private contractors to collect federal income taxes.
- The current private debt collection program exposes taxpayers to harassment, abusive calling, and violations of taxpayer rights and disclosure protections. For example, one elderly couple was called 150 times, including five times a day, asking for a taxpayer. GAO found that debt collectors placed over one million calls, many to innocent people, trying to reach 35,000 taxpayers. The Federal Trade Commission had 130 complaints as of last year and likely to involve the private tax debt contractors, and the Taxpayer Advocate has many more. Giving unaccountable private contractors access to Americans’ personal financial data poses a risk that we just cannot afford.
- To date, this program has lost almost $50 million, in part because of the huge bounty paid to private debt collectors. We can close the tax gap more efficiently for less money by having the IRS collect unpaid federal taxes compared to private debt collectors according to the IRS Commissioner
- With bipartisan support, the House has twice passed legislation to stop the private collection of federal taxes in this Congress, most recently last fall.
New Taxpayer Protections Against Identity Theft and Tax Fraud
- The bill requires the IRS to notify a taxpayer that there may have been unauthorized use of the taxpayer’s identity – in the course of a tax fraud investigation.
- It also cracks down on misleading websites that seek to get personal information by imitating the IRS, by increasing both civil and criminal penalties. Con artists are bilking consumers out of thousands of dollars in tax refunds by targeting the 136 million American taxpayers.
Closing Offshore Tax Loopholes for Federal Contractors (H.R. 5602, Reps. Ellsworth and Emanuel).
- The Fair Share Act would close a loophole that allows government contractors, who receive millions or billions in taxpayers’ dollars, to set up sham companies in foreign jurisdictions to avoid paying Social Security and Medicare taxes.
- Defense contractor KBR, which has received millions of U.S. taxpayer dollars through its Iraq contracts, has reportedly avoided paying its fair share of Social Security and Medicare taxes by creating shell companies in the Cayman Islands. KBR is taking advantage of our tax system and preventing KBR’s own American employees working abroad from being able to qualify for Social Security and Medicare.
- This loophole has recently allowed the defense contractor KBR Inc. to fleece the American taxpayer by almost $100 million a year, while shirking their obligation to American workers.
Making the Tax Code Simpler and Fairer -- Provisions to Help for Low-Income Taxpayers
- It would strengthen IRS outreach to make sure that people know that they are entitled to tax refunds or to payments under the Earned Income Tax Credit (EITC). About 25 percent of households eligible for the EITC in 1999 did not claim it, and working Americans may have lost out on approximately $8 billion in unclaimed earned income credits in 2004. [General Accountability Office, 2001; Joint Economic Committee, 4/16/07]
- It would also permit the IRS to refer these taxpayers to low income tax clinics and increase funding for these clinics, and strengthen taxpayer protections from "predatory" providers of refund anticipation loans.
- The bill eliminates outdated and cumbersome cell phone reporting -- requiring detailed call records to substantiate business use of employer-provided cell phones.
- It clarifies that the IRS can use its website to publicize unclaimed taxpayer refunds.
Fully Paid For
- Delays withholding requirement on certain governmental payments for goods and services. The provision would delay, for one year (to December 31, 2011), the application of the three percent withholding requirement on government payments to contractors and small businesses for goods and services.
- Health Savings Accounts compliance. The bill includes compliance measures for tax-preferenced Health Savings accounts. Under current law, a taxpayer with a Health Savings Account can withdraw those funds for any purpose and if they are not used for health purposes then the taxpayer must pay taxes on that withdrawal. In 2007, millions of dollars were withdrawn from HSAs for non-health care purposes, such as escort services, gambling and country club memberships. The bill simply requires reporting by a trustee of the HSA of any funds used for non-health care purposes in order to reduce the tax gap.
The Contracting and Tax Accountability Act - H.R. 4881
On April 14th, the House passed the Contracting and Tax Accountability Act, H.R. 4881. This bill would withhold most federal contracts and grants from businesses and organizations that are delinquent in their federal taxes.
Contractors owe the federal government billions of dollars in delinquent taxes. In 2004 and 2005 alone , GAO reported that government contractors owed more than $5 billion in unpaid federal taxes. Many of these contractors have repeatedly failed to fulfill their tax obligations and have delinquencies that extend over multiple tax periods.
Currently, federal law does not require federal agencies to consider tax debts in making contracting decisions. In fact, current law prohibits the disclosure of taxpayer data, which means there is no mechanism for contracting officers to assess the IRS’s tax data when conducting their review of prospective contractors. While the government requires agencies to consider various criteria, including financial resources, business ethics, and integrity, a contractor with seriously delinquent tax debt is not disqualified from receiving federal funds. This bill requires contract and grant applicants to give contracting officers permission to check their tax status.
Our government should not award federal contracts to companies that fail the basic responsibility of paying taxes. This bill ensures that companies that receive funds from U.S. taxpayers through federal contracts or grants play by the rules. Companies that don’t pay their taxes also gain an unfair advantage (by lowering their costs) over companies that are doing the right thing – when the companies compete for federal contracts. This bill also is a practical and cost-effective way to ensure all companies compete on a level playing field and that our tax dollars are being used wisely.
Similar provisions were included in the FY 2008 Omnibus Appropriations bill; this bill makes them permanent. Similar provisions were included in the FY 2008 Omnibus Appropriations package (PL 110-161); however, these provisions expire at the end of FY 2008. This bill makes the fix permanent for all federal spending on contracts and grants.