02/17/04 — Robbery: Defense contractors beating the tax system

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Robbery: Defense contractors beating the tax system

If a school system or municipality or any agency or organization receiving federal money doesn’t adhere strictly to guidelines, the government has a surefire way of bringing them into compliance.

The magic words: “Cut off their federal money!”

But somehow, around 27,000 defense contractors for years have been enjoying what has amounted to some kind of immunity from a tight-fisted by the Department of Defense and the Internal Revenue Service.

The Government Accounting Office has told a Senate committee that those contractors owe more than $3 billion in unpaid taxes. Much of that money was withheld by the businesses from employees for Social Security, Medicare and federal income taxes. And many of the businesses and individuals also have failed to pay their own income taxes for years.

A recent Associated Press story told of a dentist who had a multi-year contract with the Pentagon for over $400,000 a year — and paid income taxes for only one year. Before landing that contract, the individual had been in debt to the government for over $100,000 in unpaid payroll and unemployment taxes from a previous business.

A custodial contractor owing $10 million in unpaid taxes, borrowed almost $1 million from the business and purchased a home abroad, several cars — and a boat!

According to The AP: “The Defense Department paid the company $3.5 million in 2002. The business was dissolved in 2003 but continues to submit invoices and receive payments from the Defense Department.”

The Senate Governmental Affairs Committee is demanding some explanations. Very properly, it wants to know why the government hasn’t moved on these contractors and particularly why it continues to do business with many of them.

As one member of that committee noted, thousands of contractors are taking home taxpayer dollars but fail to pay the taxes they owe.

Privacy laws prevent the GAO from identifying the delinquent companies and individuals even to Senate committee.

While the committee is demanding a crackdown, accountability and collections, it might also initiate a move to change that ridiculous law that protects the identity of the culprits who have beaten fellow taxpayers out of $3 billion.

Published in Editorials on February 17, 2004 12:40 PM