At least 3,700 government contractors and nonprofits that received stimulus money owed $757 million in back taxes, according to The Government Accountability Office report released May 24. The organizations received more than $24 billion in stimulus money.
The report which examined 63,000 fund recipients, said the tax delinquents comprised almost 6 percent of the sample but cautioned that the real number could be higher when factors such as income under reporting are taken into consideration.
Some cases involved both large amounts of tax debt as well as large amounts of stimulus funds. In one such case a social services nonprofit owed $2 million in taxes while it received more than $1 million in stimulus money.
Another company, a security firm, which received $100,000 in stimulus money and owed $9 million in unpaid taxes, was the most serious documented case.
A Senate Homeland Security and Governmental Affairs subcommittee will hold a hearing on the report this week.
"This shows how fundamentally flawed the failed stimulus has turned out to be," said Sen. Orrin Hatch of Utah, top Republican on the Senate Finance Committee, "when Washington jams through almost a trillion dollars in spending with little scrutiny."
Federal law does not currently prevent tax delinquents from receiving grants, but the government can withhold payment under certain provisions. Contractors are required to present documentation that their taxes are paid, but some recipients whose money was disbursed at the state or local level were able to dodge federal review.
Sen. Carl Levin, D-Mich., chairman of the investigations subcommittee holding this week's hearing, said it has been known for years that some federal contractors and grantees don't pay their taxes, but added that the executive branch should "get on with it" and bar the worst of the tax cheats from the contracts.
Sen. Max Baucus, D-Mont., chairman of the Finance Committee, said he would most certainly use the conclusions from the report to make sure everyone pays their fair share because every unpaid tax dollar was added to our deficit and taken from future generations.
"It is a matter of basic fairness that those who take government money should be required to pay their taxes like everyone else," said Sen. Tom Coburn of Oklahoma, the panel's top Republican. "That such a huge amount of the stimulus money went to known tax cheats should be a wake-up call for Congress."