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Sep. 11, 2014

Another Way Taxpayers Were Fleeced by the ‘Stimulus’

A new study finds waste was rampant, but also government-approved exploitation.

A few months after Barack Obama signed the $787 billion stimulus package into law in 2009, Joe Biden admitted that the spending would result in some waste mistakes. Two years later, perhaps sufficiently scolded for making such bluntly truthful remarks, he exuberantly announced that while “naysayers” said the stimulus bill couldn’t be implemented without massive waste fraud and abuse, “You know what? They were wrong.”

Claiming the government is able to manage $800 billion in taxpayer dollars without wasting any of it is like saying there is not a smidgen of corruption in the IRS – that’s right, “not even a smidgen.” But with Sheriff Joe on watch, that’s what this administration wants Americans to believe.

Not having been born yesterday, we didn’t believe it then. Now, a yearlong study by McClatchy newswire service and ProPublica, a non-profit investigative organization, found that not only was waste rampant in those “shovel ready” projects nationwide but so was government-approved exploitation of workers.

The investigation, which examined payroll records for federal housing projects in 28 states, uncovered “widespread cheating by construction companies” – all part of “a massive labor scheme that harmed workers and cheated unsuspecting American taxpayers.” And most of these projects were funded at least in part with stimulus money. How exactly did this happen? In order to submit competitive bids and win those stimulus-funded federal contracts, construction firms listed workers as contractors rather than employees, thereby saving money through avoiding state and federal taxes while also depriving employees of benefits and workers’ compensation insurance.

It’s a practice termed “misclassification,” and it’s simple, really. When filling out paperwork required for contracting with the federal government, companies that classified workers as contractors would simply not list taxes withheld – with some companies instead including notes such as “pays own taxes” or “1099” (the IRS form used for independent contractors). However, many workers didn’t pay their own taxes. Indeed, while the government collects most of what’s owed by employees of companies, its collection rate is far lower when it comes to self-employed individuals.

The government has vowed to fix misclassification for years, but bureaucrats have been particularly lax in dealing with it when it comes to federal contractors on stimulus projects. Shocking? Not really. It turns out agencies receive no specific requirements when it comes to looking out for contractors who are misclassifying employees. As one former IRS assistant special agent said, “You would think that common sense would lead you to believe … it should be done, but it’s not what happens.” Of course the first mistake here is associating common sense with government.

The result? Billions of dollars in tax revenue were lost in the “no-waste” stimulus bill. In Florida, for example, nearly $400 million per year was lost; in North Carolina, almost $500 million. And in Texas, the figure was $1.2 billion.

According to the McClatchy investigation, “More than 14 percent of the companies submitting payroll records on 23 projects across the U.S. that were examined didn’t withhold the taxes employers are obligated to deduct from employees’ pay.”

At first glance, this might seem like a case of pure-and-simple (and illegal) tax evasion. It is that, but it’s also a practice that harms American workers, costing them benefits and unemployment insurance, and also undercuts law-abiding companies. One above-board company that previously won 80% of job bids won just a third of its stimulus bids.

Unions are crying foul, too. United Brotherhood of Carpenters and Joiners of America lawyer Matt Capece asked rhetorically, “So we the taxpayers are paying the tax cheaters who are exploiting their workers and stealing work from law-abiding employers?” Yep, that’s about it. Then again, either unions are complaining because they receive less dues through this scheming, or they are going to use this to justify forcing more unionization – or both.

But don’t worry – Obama promised that those misusing taxpayer money would have to answer for it. Well, Mr. President, we’re waiting for that answer.

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