A $3 billion headache for Bush

Published February 12, 2004 1:09AM (EST)

National security and taxation are two of George W. Bush's favorite subjects, so he should take great interest in a new federal report that examines more than 27,000 Pentagon contractors and how they came to owe the federal government some $3 billion in unpaid taxes.

The report will be the topic of hearings Thursday before the Senate Governmental Affairs Committee. It also may be a focus for Bush's Democratic opponents, who will no doubt see the report's findings as new evidence the Bush Administration and its Department of Defense are too cozy with the defense industry.

The report is called "FINANCIAL MANAGEMENT: Some DOD Contractors Abuse the Federal Tax System with Little Consequence." In it, investigators from the non-partisan General Accounting Office cite "numerous instances of abusive or potentially criminal activities." In one example, a small Custodial Services contractor, which had received nearly $12 million in Pentagon money, proved to be almost a million dollars short in its tax filings; the business was also "linked to potential check fraud." Some contractors owed the government back taxes dating from the 1980s.

The tax abuses are apparently part of a pattern, documented by Salon in 2002, that proves the Pentagon simply can't keep track of its money, its troop supplies or other critical resources. Over decades, the Pentagon accounting system has devolved into a morass, with inefficiency and corruption the inevitable result. As a result of accounting problems and "longstanding problems at IRS," the new report says, the Pentagon often makes "minimal or no actual [tax] collections."

The Defense Department controls nearly two-thirds of all federal contracts, but there is no law that explicitly bars the military from hiring deadbeats. Still, as the report notes, "paying billions of dollars to DOD contractors that at the same time have substantial unpaid taxes is not sound business practice."

By Raffi Khatchadourian

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