The GAO released a report for efficiencies in various government programs, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. While the headlines buzzed about savings, ya all need to read this. The GAO is going after a lot of low hangin' fruit, that being not large corporations but instead social programs and individual taxpayers.

Take this paragraph for example:

The housing market downturn is resulting in billions of dollars of forgiven mortgage debt. In tax year 2008 (the most current data available), the Internal Revenue Service (IRS) estimates that individual taxpayers excluded $6.4 billion to $11.8 billion in forgiven mortgage debts on principal residences. While most forgiven debt is treated as a financial gain and included in taxable income, forgiven mortgage debt is, according to complex rules, sometimes excluded from taxable income.

Forgiven mortgage debt means you probably were foreclosed on and declared bankruptcy. The GAO is recommending this be treated as taxable income? Talk about adding insult to injury.

Through 2012, taxpayers may exclude forgiven mortgage debts from taxable income if the mortgage proceeds were used to buy, build, or substantially improve a principal residence. Forgiven mortgage amounts used for other purposes, including purchases of vacation or investment properties, would generally still be considered taxable income unless the taxpayer is bankrupt or insolvent.

So, you lost your home, or got a home equity loan in order to pay off debt. So, the GAO is recommending people pay taxes on this as if it was income? Think about hedge funds being taxed at 15% or the capital gains rate instead of the income tax rate and then think about this.

However, in recent years many taxpayers cashed out equity from their primary residences and used the proceeds for personal consumption or to consolidate other debts—not to buy, build, or improve the home. In addition, taxpayers losing investment or vacation homes through foreclosure are still liable for taxes on forgiven mortgages secured by these properties. Vacation home and investment property purchases are estimated to be well over a quarter of all house purchases in recent years. Despite the financial hardship that leads to forgiven debt, recent housing market analyses suggest that thousands of taxpayers with forgiven mortgage debt not eligible for exclusion (debt forgiven on second homes or investment property) may be able to pay the taxes legally due on such debt.

Another target is education tax credits. That's right, supposedly while trying to earn a Masters degree or even a second language, oops, the GAO is recommending you be nailed to the IRS cross for trying to claim that tax credit.

The Internal Revenue Service (IRS) faces challenges ensuring compliance with the eligibility requirements of the Hope and Lifetime Learning tax credits. Millions of taxpayers claim the credits to offset qualified postsecondary education expenses. For fiscal years 2009 through 2013, taxpayers are estimated to claim Hope and Lifetime Learning credits totaling $27 billion and $13 billion respectively.

Another is sole proprietors, or people who earn a living running a small business, as if they have not been slammed enough. Sole proprietors are vulnerable and self-employed, yet here's what the report claims:

The Internal Revenue Service (IRS) estimates that $68 billion of the $345 billion gross tax gap for 2001 was due to underreporting of federal income tax liabilities by self-employed owners of unincorporated businesses—also known as sole proprietors. An additional part of the tax gap was due to the noncompliance of some sole proprietors with employment tax laws. The federal tax gap is the difference between the amount of income and other federal taxes owed and the amount that is voluntarily and timely paid. The gap arises from taxpayers underreporting taxable income, underpaying known tax liabilities, and not filing required tax returns.

Sole proprietorships cannot qualify for unemployment insurance and have to provide for all benefits, health, disability, retirement. So now, instead of going after large corporations with offshore accounts or the super rich, they want to squeeze the small business?

While the below paragraph sounds unnerving, $4.1 billion dollars, look at the other number, this is spread across 7688 businesses or an average of $500,000 dollars for each. Problem is, odds on there are probably 100 or so bad actors in this number and the rest are probably not each earning $500k a year.

For two states, GAO analyzed 2007 data on the businesses that IRS initially identified as potential nonfilers but later determined were not liable to file returns. Of these, GAO found 7,688 businesses where IRS data indicated little or no business activity, but Dun and Bradstreet data showed business activity as measured by sales totaling $4.1 billion.

It gets worse, while the report seems to imply there is waste through redundancy and multiple programs:

We identified 44 federal employment and training programs that overlap with at least one other program in that they provide at least one similar service to a similar population.

...and there are plenty of improper payments breakin' the bank:

Reported estimated improper payments government wide have steadily increased over the past decade from an estimated $20 billion in 2000 to approximately $125 billion in 2010.

.... the report sprinkles lots of horrific poverty, hunger and homeless facts and how more and more people are desperate for help:

The federal government spent more than $62.5 billion on 18 domestic food and nutrition assistance programs in fiscal year 2008.

Approximately 643,000 individuals and persons in families experienced homelessness on a single night in January 2009.

In 2009 federal agencies spent about $2.9 billion on over 20 programs targeted to address the various needs of persons experiencing homelessness.

Unfortunately what comes after these facts are some sort of implication these programs are wasteful, even from multiple agencies handling things like driving the disabled as a service or providing training.

In fiscal year 2009, 47 programs spent about $18 billion to provide services, such as job search and job counseling, to program participants.

In fiscal year 2009, the federal government spent over $4 billion specifically to improve the quality of our nation’s 3 million teachers through numerous programs across the government.

As if having a particular offering, such as training in one government agency is a problem when another has a similar program for it's division.

Now, let's look at some of the numbers from the DoD, also listed in the report as wasteful:

Over the next 5 years, the Department of Defense (DOD) expects to invest almost $343 billion (in fiscal year 2011 dollars) on the development and procurement of major defense acquisition programs.

Here is the amount going to contractors from the government, $540 billion. That number is absolutely incredible and one must wonder why so much is going to outside contractors. Why isn't the government developing or providing those services in house, as part of the government itself? Look at this, since 2002 spending on contractors has doubled:

Since 2002, spending on federal contracts has more than doubled to about $540 billion in 2009, consuming a significant share of agencies’ discretionary budgets.

The GAO reports $170 billion was spend on no bid contracts in 2009. Compare that to the $4.1 billion of suspected businesses in taxes.

Federal agencies obligated approximately $170 billion on noncompetitive contracts in fiscal year 2009 alone. While there has been some fluctuation over the years, the percentage of obligations under noncompetitive contracts recently has been in the range of 31 percent to over 35 percent.

To make matters worse, bonuses (think CEO pay), have made it to federal contract awards:

GAO has reported that several major agencies spent over $300 billion from fiscal year 2004 through fiscal year 2008 on contracts that included monetary incentives known as award fees. The purpose of these incentives is to motivate enhanced contractor performance. In 2005, however, GAO found that the Department of Defense (DOD) paid billions of dollars in award fees regardless of acquisition outcomes. In 2007, GAO found significant disconnects between program results and fees paid at the National Aeronautics and Space Administration. In 2009, GAO reported
that five agencies had paid more than $6 billion in award fees, but were not consistently following award fee guidance and did not have methods for evaluating the effectiveness of an award fee as a tool for improving contractor performance.

Herein lies the problem. The report seems to weight equally a few teachers getting some classes to $300 billion in contracts that contained these bonuses or some job search training to $170 billion in no bid contracts. Medicare fraud and waste is amplified, or put almost on equal footing with the fact the government doesn't use it's power to lower health care costs from for profit servicers and vendors.

Yet, instead of really going after defense contractors, the for profit health care sector, or large, multinational corporations, we have more of this, going after individuals, the little people.

The Joint Committee on Taxation estimated that individual taxpayers’ deductions of home mortgage interest reduced federal revenue by about $80 billion in 2009. Also, in its most recently completed comprehensive study of individual taxpayer compliance for 2001, the Internal Revenue Service (IRS) found that 12 percent to 14 percent of individual taxpayers deducting mortgage interest misreported deducted amounts. About half of taxpayers underreported the deduction while about half overreported.

With all of these contracts what is even more astounding is the refusal to recognize, outsourcing the government is costly.

The report gets worse. The report changes the time period for total sums of potential waste. For example, one area targeting the poor, the GAO reports for a few years, yet areas targeting say the DoD, the time period is one year, or even a select year. Very manipulative reporting to change the time window and dates in comparing areas of waste.

Bottom line, we cannot get any focus on the real causes of the United States budget deficit. Truly, it's just amazing how screwed up our government is, although this report seems to be almost a strategy. By consolidating programs for the poor, hungry and needy, it might very well be easier to de-fund these services and eliminate them.

Imagining a budget that reduces real government waste, in the national and people's interest, is just that, only in your imagination.

Read the report for fun facts like 12 million tax returns have basic math errors and we pay $23 billion a year for equipment corrosion damage. Yup, Americans can't add and equipment is rusting on the vine. If only the GAO had estimated the tax dollar waste caused by corruption.