THE BLOG

What We Could Have Done With the $5.8 Billion the Government Lost to Tax ID Theft

02/27/2015 06:01 am ET | Updated Apr 29, 2015

Imagine you were President, or Speaker of the House, and one day you woke up and discovered that you had an extra $5.8 billion dollars to spend. What would you do with the cash? A new aircraft carrier (or half of one, anyway)? Perhaps a couple of bridges to somewhere or a new highway? A quaint premise, indeed, but not as far-fetched as you might think, considering the amount of money American taxpayers have been losing to taxpayer identity theft.

The Treasury Department was drained of an estimated $5.8 billion in tax refunds by identity thieves filing fraudulent returns during the 2013 tax-filing season. True story, according to the Government Accountability Office, which delivered the bad news earlier this month. The IRS was able to prevent the loss of another $24.2 billion during the same time period.

Earlier this month, the software giant Intuit temporarily suspended electronic filing of all state tax returns following a marked uptick in what appeared to be fraudulent filings. And with major data breaches like Anthem's recent debacle compromising Americans' Social Security numbers, identity thieves are getting their hands on all of the pieces of our personally identifying information they need to commit tax identity theft.

The $5.8 billion in refunds issued in 2013 were paid to identity thieves who filed fraudulent returns using stolen names, Social Security numbers and fake W-2 forms. With tax identity theft skyrocketing in recent years, it doesn't appear anyone knows how to stop the problem. To put this into perspective, we are currently losing the equivalent of Chad's annual GDP. We're talking about a whole lot of money here.

I asked members of Congress where that money could have made a difference. Here's how they replied. (A quick note: Several Republican members of Congress were asked to comment and declined.)

Sen. Elizabeth Warren, D-Mass.

"$5.8 billion could have increased the National Institutes of Health budget for the year by more than 15%. Right now, NIH can fund only one in six research proposals, and many young researchers are getting discouraged and leaving the field. Think how many young researchers could have had their careers launched with that $5.8 billion--and think about the breakthroughs on Alzheimer's or autism or diabetes that they might have made."

Sen. Gary C. Peters, D-Mich.

"Cracking down on identity theft and false tax returns would not only save American families from financial hardship and frustration, it would free up funds to reinvest in our nation's future. I would divide the $5.8 billion in savings between the Head Start Program and basic science research at the National Science Foundation. The Head Start Program is one of the most successful federal programs we have. Providing critical education, health, nutrition and social services to low-income families helps ensure that all American children have a chance to succeed in school, regardless of their ZIP code. The National Science Foundation funds all fields of fundamental science, research and engineering -- the seeds that will grow our future economy. Investing in scientific research is critical to increasing America's competitiveness, driving innovation and creating new jobs."

Doubtless, there are countless projects that might be jumpstarted or enhanced with $5.8 billion.

If we didn't turn the $5.8 billion into new programs or to bolster existing ones, there's a more direct way to deploy it. That money could be invested in initiatives that would educate and protect consumers and businesses against the perils of data breaches and identity theft. What could you do with that kind of money? I'm going out on a limb here, but I think it might be possible to keep more money in the Treasury and limit its refund to rightful taxpayers by investing in even more sophisticated filtering systems as well as more people on the job to make tax filing, taxpayer vetting and the tax fraud remediation processes more efficient and effective.

Hopefully, the observations by our lawmakers will draw attention to the continuing disaster of identity theft and the desperate need for the government to step up its efforts to stem the outgoing tide of Americans' hard-earned tax dollars. So, what would you do with the $5.8 billion?