The Special Inspector General for Iraq Reconstruction just put out their semi-annual report on reconstruction. The report is on the web here, and it ain't pretty. The Washington Post has some lurid examples of the fraud and waste that the report exposes.

And to think that just a few months ago the special inspector general's office was on the chopping block...

One important note: it's tempting to see contracting waste and abuse as an Iraqi reconstruction problem, or a Halliburton problem, or even a defense problem. But really it's a contract administration and oversight problem.

Contract mismanagement and fraud is happening government-wide. Spending on contracts has risen dramatically, but spending on overseeing those contracts hasn't. Agencies have found loopholes to administer and hand out contracts in reckless and wasteful ways. The cost to taxpayers has been enormous. (See this congressional report for more).

The federal contracting system is broken. Unless it's fixed, and unless Congress fulfills its constitutional duty to conduct oversight, things like this are going to keep happening.

On a disappointing note, the otherwise-adequate "CRomnibus" is missing a crucial provision that would have shut down an IRS program that privatizes tax collection. From BNA ($):

The [IRS] measure, written mostly by House Appropriations Committee Chairman David Obey (D-Wis.), dropped language that was in the House-passed 2006 Transportation-Treasury spending bill but not in the Senate bill that would prohibit IRS from using any of its funds to hire private debt collectors.

Although National Treasury Employees Union President Colleen Kelley expressed disappointment that the language was excluded from the measure, she said "we understand there were very few policy changes allowed in the measure and we remain optimistic that this program will be brought to an end soon."

Fortunately, measures that end the program have been introduced in the House and Senate.

Congressional Democrats have taken steps to end the IRS program that privatizes tax collection, GovExec reports today.

The House bill (H.R. 695), offered by Reps. Chris Van Hollen, D-Md., and Steve Rothman, D-N.J., would repeal the authority Congress granted the IRS in 2004 to outsource some tax debt collections. The Senate measure, from Byron Dorgan, D-N.D., and Patty Murray, D-Wash., orders the suspension of an IRS program to use private collectors, and would block funds for the initiative.

Instead of this program, which is unbelievably wasteful and could pose privacy risks, Rothman and Van Hollen have proposed a funding increase that would let IRS hire more staff to do collections. Nina Olson, the IRS taxpayer advocate, made similar recommendations in her annual report to Congress.

And one quick complaint about the generally good GovExec article mentioned above. At the end, the advocacy front for private tax collectors made a statement that pretty obviously misrepresented the facts.

The Tax Fairness Coalition, which represents private collection firms, said in a statement that the lawmakers are using "fear and innuendo designed to kill a successful program." The group argued that the program will make a significant contribution to closing the gap between taxes collected and owed, and already has exceeded expectations for the amounts collected.

Amount collected so far: $11 million. Low-ball estimate of tax gap: $345 billion.

GovExec was remiss for not providing more context.

Reports this week of continued shady behavior by the new Administrator of the General Services Administration, Lurita Doan, have recently caught the eye of the Chairman of the House Oversight and Government Reform Committee, Henry Waxman (D-CA). Waxman launched an investigation into reports that Doan had steered no bid contracts to a company owned by a friend, Edie Fraiser.

Waxman has sent letters to Doan, Fraiser, and former GSA General Counsel Alan Swendiman to request information and materials related to the award of the contract. The best part of all of this is that this contract appears to be the catalyst that started all of Doan's problems at the GSA in the first place. The Post has reported that it was shortly after the GSA's Inspector General started investigating this no-bid contract award that, Doan requested that Congress reduce the IG's funding by $10.2 million.

Hmmm...I wonder why Doan would want to cut back funding for the very same department that's investigating a sweetheart deal she made with one of her buddies. Things seem to only be getting worse for Administrator Doan.

The Senate Budget Committee held a hearing today on the $345 billion tax gap- or the difference between what people owe the federal government and what they pay. Overall, there was consensus that a) the tax gap does exist in huge proportions, b) we must do something about it and c) we must try to minimize doing harm to compliant taxpayers when we address the tax gap.

The witnesses, and the Senators in attendance weren't all of the same mind on many important things, though. One point of confusion (more than contention): exactly how big the tax gap is. The data everyone had to go on comes from an IRS research project whose methods seem pretty unreliable. Budget Committee Chairman Sen. Kent Conrad (D-ND) and Robert McIntyre of Citizens for Tax Justice (testimony here) think that the gap is probably much higher than IRS estimates, partly because the data is bad and already out of date, and partly because of the many tax-dodging activities that the research project did not account for.

There was serious contention (and not confusion) over what we know about the causes of the tax gap. John Satagaj of the Small Business Tax Compliance & Fairness Coalition (testimony here) testified to the importance of understanding the nature of tax non-compliance prior to addressing it. Satagaj claimed that nobody really knows why people don't comply with the tax law. Until we know why they aren't complying, he said, we won't be able to keep them from cheating or making errors. However, McIntyre and Michael Brostek of the GAO (testimony here) testified to the many causes of the tax gap that are quite well-known: a lack of disclosure for certain sources of income, offshore accounts, a lack of clarity in the tax law, and inadequate audit rates, among others.

Yet Satagaj still claimed that until we know exactly what's going on, we shouldn't take action. But the problem is, as McIntyre noted, nobody will know the exact size and causes of the tax gap until action is taken. So much income is kept in secrecy that no research effort would disclose this information. It can only be brought into the light of day by changing the rules of the game.

Addressing the tax gap is a gamble, but unless we don't want to do it, there is no risk-free option.

One final point of contention, of course, was what we should do about the tax gap. McIntyre said his two priorities were disclosing offshore tax shelters (which Sen. Conrad strongly supported) and stepping up IRS resources and audits. Brostek said increasing income reporting and simplifying the tax code. And Satagaj said "education."

Brostek and McIntyre were right on the money. Education, however, is far and away an insufficient way of closing the tax gap. Call me jaded, but I think anyone using an offshore account to hide their income is well aware of the ins and outs of the tax code. What is it about effective tax collection that Satagaj, who represents ostensibly honest small businesses who are at a disadvantage when competitors cheat on their taxes, is so afraid of?

GovExec has a good follow-up to the funny business at GSA.

The General Services Administration's buying services and contracts are supposed to work like a self-lubricating machine. In come orders for goods and services from across the government, out go purchasing orders to companies on GSA's schedules. Off to the ordering agencies go products and assistance. Money to make the machine hum comes directly from customers in the form of fees paid to GSA.

But lately, GSA more closely resembles a sputtering Rube Goldberg contraption.

A Jan. 19 front-page story in The Washington Post detailed an attempt by the agency's chief, Administrator Lurita Doan, to award a no-bid contract to the company of a longtime friend. That has led to questions about her future at the agency.

EJ Dionne's column today, as usual, is good, but one thing kinda bugged me:

No. 1: Extending President Bush's tax cuts to eternity will make the long-term problem much worse. Hint No. 2: The hardest part will be how -- simultaneously -- to meet the fiscal need to rein in health costs and the social need to get health insurance to everyone. Hint No. 3: Most Democrats don't like to talk about it, but somebody's taxes are going to have to go up.

He sets up the "social need" for universal health insurance in tension to the "fiscal need" to rein in health costs, but I'm not so sure that's the right relationship. As I tried to write yesterday, there's some evidence that a greater role for the government would help bring down health care costs across all sectors in the long term.

Anyway, I confess my ignorance of the mechanisms involved here. But doesn't this seem like the perfect silo-crossing issue? It'd be nice if health care wonks helped us ignorant budget wonks understand this aspect of universal coverage better.

The best I can do is put Jacob Hacker's summary of the argument for cost-containment after the jump.

The last leg of the 100 hours legislative marathon- the Creating Long-Term Energy Alternatives for the Nation Act of 2007- will come up for a vote Thursday. The LA Times has a good summary of the bill here.

The bill addresses a bunch of shameful things that have been in the news recently. It corrects some mistakes in leases to oil companies that have cost the federal government billions. It rescinds a few tax subsidies to Big Oil, and ends a royalty incentive program that has failed to encourage more energy production. And it directs Congress to put the money that these measures bring in- about $14 billion over 10 years- in a fund to promote the development of alternative energy.

All worthy goals. But Congress should be aware that this bill doesn't- and, to my knowledge, couldn't- do anything about the fact that Interior Department auditors have let oil and gas companies get away with not paying royalties on energy recovered on federal property.

Oil and gas on federal property are common assets. When energy companies profit off of these assets, they owe the public some money. Congress needs to hold the Interior Department's feet to the fire until it gets what the public deserves. Bring on the hearings, investigations, and appropriations fights!

David Cay Johnston, ace tax reporter, has an excellent story in today's NYT on the norms at IRS concerning audits. To sum up, IRS auditors are more or less discouraged to do thorough audits, letting billions of dollars get away when it's right in front of them.

Top officials at the Internal Revenue Service are pushing agents to prematurely close audits of big companies with agreements to have them pay only a fraction of the additional taxes that could be collected, according to dozens of I.R.S. employees who say that the policy is costing the government billions of dollars a year.

“It’s catch and release,” said Douglas R. Johnson, an I.R.S. auditor in Colorado for three decades who said he grew so frustrated at how large corporations were allowed to pay far less than what he thought they owed that he transferred to the agency’s small-business division.

For more on this issue, see this post on a recent report from the TRAC program, which monitors government data.

The taxpayer advocate service (TAS), an independent office within the IRS, put out the taxpayer advocate's annual report to Congress today (click here for the executive summary). The TAS decided that the most important issues facing taxpayers this year is the alternative minimum tax, followed by the "tax gap." Its top legislative priorities: creating a special procedure for IRS appropriations, and repealing the IRS privatization program.

There's a summary of the top legislative priorities after the break.

Yesterday’s Wall Street Journal article ($) detailing the expected supplemental spending request for the wars in Iraq and Afghanistan is a perfect illustration of the problems that emergency funding bills present and why Congressional oversight of such spending is badly needed.

Lockheed Martin Corp.'s new Joint Strike Fighter [(JSF)] plane won't be ready to see action for years. But that didn't stop the Air Force from inserting two of the jets into the coming emergency-funding request for operations in Iraq.

The Pentagon's supplemental budgets traditionally pay for war costs such as personnel, equipment repairs and ammunition. But as the Joint Strike Fighter request shows, the coming supplemental is being used by the military services for more than replacing what has been lost in Iraq and Afghanistan. It is being used to acquire future weapons that normally would be funded through the regular Pentagon budget.

[...]

An October directive from Deputy Defense Secretary Gordon England opened the floodgates by allowing the services to request emergency funds to replace equipment and upgrade to newer models for the "overall efforts related to the global war on terror," not just operations in Iraq and Afghanistan.

"It's a feeding frenzy," says an army official involved in budget planning. "Using the supplemental budget, we're now buying the military we wish we had,"

In addition to the JSF, spending requests for the following equipment not currently being used in Iraq and Afghanistand are tucked inside the Pentagon's shopping list:

• $3.67 billion for the Army to reconfigure ground forces into smaller units
• $3.04 billion for the Navy to repair and acquire aircraft - an amount beyond what has been lost in combat
• $62 million for ballistic missiles
• V-22 tilt-rotor aircraft, which has never been deployed in a combat zone