Another contractor, which last year provided security guards for the Department of Homeland Security at a cost of $200,000, owes more than $400,000 in unpaid taxes. Its owner has repeatedly failed to file individual income taxes and has diverted his employees' payroll taxes to a foreign bank account to pay for building a home abroad.
Outrageous as these examples are, they are just the tip of a very large iceberg. Some 33,000 federal contractors together owe the Internal Revenue Service more than $3.3 billion in back taxes.
The scale of this boondoggle came to light last year when the Senate Permanent Subcommittee on Investigations, with the dogged help of the Government Accountability Office, found that 27,000 Defense Department contractors owed more than $3 billion in unpaid taxes. In its investigation, the G.A.O. determined that the government's program to subtract unpaid taxes from payments made to the companies, the Federal Payment Levy Program, simply was not working. In 2003, the levy program should have collected $100 million; it collected only $680,000.