The Lucrative Art of War

The New York Times, May 9, 2008

The Editorial

Congress is finally moving to shut one of the more egregious forms of Iraq war profiteering: defense contractors using offshore shell companies to avoid paying their fair share of payroll taxes. The practice is widespread and Congressional investigators have been dispatched to one of the prime tax refuges, the Cayman Islands, to seek a firsthand estimate of how much the Treasury is being shorted.

No one will be surprised to hear that one of the suspected prime offenders is KBR, the Texas-based defense contractor, formerly a part of the Halliburton conglomerate allied with Vice President Dick Cheney. According to a report in The Boston Globe, KBR, which has landed billions in Iraq contracts, has used two Cayman shell companies to avoid paying hundreds of millions in payroll, Medicare and unemployment taxes.

Unfortunately right now there is nothing illegal about this. The House has approved legislation to plug the dodge by treating foreign subsidiaries of defense contractors as what they are — American employers required to pay taxes. The Senate must quickly follow suit and not buy the contractors’ line that listing American workers at offshore companies is a cost saving passed on patriotically to the war effort. No less insulting, the Cayman dodge has been blocking Americans from the protection of labor and anti-discrimination laws.

The House has taken on another shamefully common abuse: voting to deny future government contracts to any company that fails to pay its corporate taxes, including an estimated 25,000 defense contractors keeping billions due the Treasury. The Senate should approve that legislation as well.

Companies enriched by taxpayers in the war boom should not be able to compound their profits by not paying their fair share of taxes. Congress must do far more to bring them to a full accounting.