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The Gaping Hole In Raising Revenue

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The current federal government shutdown should be a wake-up call to all Americans. No matter what side of the political aisle you are on, there is one undeniable fact: our country is in dire straits financially. There is little chance of the Republicans acquiescing to tax hikes or the Democrats signing off on significant budget cuts, which leaves the balancing of the nation's books to sequestration -- a form of hostage taking like the government shutdown. However, sequestration isn't a long term panacea for the economic inevitability of the United States. What is? Permanently cutting waste and clawing back fraudulent federal and state expenditures.

All governments in America operate under their own standards, called Government Accounting Principles (GAP), which are distinct from the Generally Approved Accounting Principles (GAAP) used by businesses and non-governmental entities. If a corporation or individual taxpayer used GAP, they'd be jailed for tax fraud. As sovereign entities, state and local governments face no such legal jeopardy. For the states, the only brake on their accounting legerdemain is the balanced budget proviso in their constitutions. And cities? Well, we've seen cities like Detroit go bust and there will be more to come.

What about the federal government? As we are witnessing with the government shutdown, there is no effective check on its juggling of the books, not even the threat of default. Except for the liberalities of GAP, our federal government would be certifiably insolvent.

Neither the partisans on either side of the political gap or the punditocracy admit that the federal government is being run along the lines of a financial fraud. Is this institutionalized culture of fraud the reason the federal government hasn't embraced whistleblower statutes that would enable the country to recover a chunk of the treasury lost to graft?

Last year, the IRS announced that awards under its whistleblower program (established in 2006) would be furloughed like many other programs during a government shutdown. Currently, many civil cases pursued by the IRS and other federal agencies have ground to a halt. In light of the logic that a shutdown is reaction to a shortfall in federal revenues, to suspend the pursuit of fraudsters and neglecting the recovery of damages that would significantly fill the federal treasury is maddening and illogical.

Even without a shutdown, the IRS -- an agency whose mission it is to acquire cash -- has miserably failed to embrace a program designed to do just that. Our tax code is riddled with irrationalities and both sides of the aisle believe it should be revamped, but with any kind of reform hard to come by in Washington, why isn't the IRS using all of its powers to boost federal revenues? Is the collection process arbitrary because many IRS statutes are so complicated and unnecessary? The IRS is notorious for wasting money by running down rabbit holes while blatantly ignoring big dollar frauds on taxpayers.

What about fraud that has gone unreported? One would reasonably think that the IRS whistleblower law would have led to an uptick in reported fraud, yet the IRS has only paid out one major award since the statute was enacted nearly seven years ago. Where are all the whistleblowers? Well, the whistleblowers are out there, but the federal government is dragging its feet. I am personally aware that the IRS permits low-level intake personnel in New York City to arbitrarily deny or punt legitimate whistleblower claims against Wall Street that could recoup billions of dollars in losses. Taxpayers should be outraged.

All taxpayers, regardless of their political persuasion, should be incensed that their monies that have been siphoned off by fraudsters are not being recovered, despite the fact that the IRS and other agencies have been given the tools to do it. The fraudsters are continuing to loot as the deterrent value of federal whistleblower statutes is undermined by the inertia of those agencies tasked with enforcing them.

This is the real gap in federal government bookkeeping, the gap between what can be done and what is being accomplished.