Obama, Ellsworth Hail Passage of Bill to Require Federal Contractors to Pay Taxes

December 19, 2007 -- WASHINGTON, D.C. – U.S. Senator Barack Obama (D-IL) and Representative Brad Ellsworth (D-IN) today praised Congress’ passage of their proposal to withhold federal contracts from companies and grantees that have not paid their federal taxes. This provision was included in the Omnibus Appropriations package (H.R. 2764), which the President is expected to sign into law. According to studies by the Government Accountability Office (GAO), thousands of federal agency contractors owe billions of dollars in unpaid taxes. This provision will withhold large federal contracts from businesses and organizations that failed to file tax returns and were delinquent on payroll taxes for a significant period of time.

Obama first introduced this proposal as an amendment to the Department of Homeland Security Appropriations bill, and it was also attached in the Senate to bills funding military construction and the Departments of Defense, Treasury, Housing and Urban Development, Transportation, Veterans Affairs, Commerce, Justice, and State. Ellsworth originally introduced the Federal Contractor Accountability Act (H.R. 1986) in the House of Representatives in April 2007. Today, Obama and Ellsworth introduced legislation – the Contracting and Tax Accountability Act – to make the fix permanent for all federal spending on contracts and grants.

“Companies that fail to pay their taxes are not responsible enough to be contractors with the federal government,” said Senator Obama. “Millions of hard-working Americans don’t get a free pass if they don’t pay their taxes, and neither should corporate interests. This provision will ensure that corporations that receive taxpayer funding play by the rules, and it will increase transparency and accountability over how our money is spent.”

“It’s wrong for government contractors who owe millions in unpaid taxes to pad their bottom lines with taxpayer dollars. Not only do these bad actors cheat our government of tax revenue, they gain an unfair advantage over businesses that play by the rules,” said Ellsworth. “I am proud to work with Senator Obama in pushing this practical and cost-effective way to ensure all companies compete on an equal playing field and our tax dollars are being used wisely.”

In numerous studies, the GAO found that thousands of General Services Administration (GSA) contractors maintained tax debts totaling over $3 billion. Many of these businesses failed to forward payroll taxes withheld from their employees and other taxes to the Internal Revenue Service (IRS). Failure to submit payroll taxes is a felony under the law. Moreover, some companies even redirected payroll taxes for personal gain. These companies were contractors for numerous federal agencies.

Federal law does not require federal agencies to adequately consider tax debts in making contracting decisions. In fact, current law prohibits the disclosure of taxpayer data, which means there is no mechanism for contracting officers to access the IRS’s tax data when conducting their review of prospective contractors.

While the government requires agencies to consider various criteria, including financial resources, business ethics, and integrity, a contractor with seriously delinquent tax debt is not disqualified from receiving federal funds. Without a systematic review process, the federal government ultimately continues to award lucrative contracts to companies with significant tax debt. This provision will withhold federal contracts and grants over $5 million from tax delinquent businesses and organizations in fiscal year 2008.

Source: Senator Barack Obama

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