Military

Mr. Chairman, thank you for calling this hearing to shed light on what the General Accounting Office has uncovered regarding the failure of some of our nation's defense contractors to pay their taxes and the Department of Defense's response.

The crux of GAO's findings-that over 27,000 DOD contractors owe the federal government some three billion dollars in taxes, and that the Department may not be doing all that it can to collect this money-is very disturbing to me.

As Chairman of the Governmental Affairs Committee, which has jurisdiction over government procurement, I have made clear my belief that there should be high ethical standards for federal contractors. That some of those who provide goods and services to our nation's fighting men and women fall short of those standards is of great concern to me.

At a time of high deficits, it is also disturbing that the Pentagon appears to have been negligent in reporting payment data to the Treasury that could have helped the IRS collect taxes owed but not paid.

Under federal law, the government may withhold part of a contractor's payment to offset for taxes the contractor owes the government. In order to accomplish this, however, agencies must report contract payment information to the Financial Management System. As we will hear today, the Pentagon has failed to use this tool in far too many cases. Adding to the problem, the Internal Revenue Service has sometimes failed to pursue those cases it did know about according to GAO. I am determined to learn why it failed to do so, and am very interested to learn what steps the Defense Department and the IRS intends to take to ensure better performance in the future.

For businesses that are inexcusably delinquent in paying their taxes, another question arises.  Why is the Department of Defense, which is among the most sophisticated purchasers of goods and services of all federal departments, continuing to do business with these companies?

The names of the contractors today are being withheld because their tax data were an integral part of GAO's research. Because we value taxpayer privacy so highly, and rightly so, we cannot know the exact circumstances surrounding each one's failure to pay. Still, GAO has singled out 47 companies as especially egregious offenders, and the Pentagon should evaluate whether or not these companies meet the standards under federal law to continue as government contractors.

Mr. Chairman, simply put, the 27,000 defense contractors who owe approximately $3 billion in uncollected taxes need to be held accountable. I appreciate your holding this hearing and shining a light on this problem. Thank you.