Contracting outrage

Sunday, April 27, 2008 | 2:08 a.m.

More than 60,000 federal contractors owe $7.7 billion in back taxes and, according to arcane government rules, they can still bid on — and win — more taxpayer-funded contracts.

A study by the Government Accountability Office also found that health care providers who receive Medicare owe an additional $1 billion in back taxes. And an undetermined amount of government aid, such as farm subsidies and small-business loans, goes to companies that owe taxes.

Among the GAO’s other findings:

• One contractor was paid more than $1 million by the Defense Department even though it owed more than $10 million in taxes.

• A Justice Department contractor that provides security guards owed $400,000 and hadn’t filed tax returns.

• The Defense Department has hired 27,000 contractors that owe about $3 billion in taxes.

USA Today reported Thursday that privacy rules and a lack of communication between government agencies allow companies to collect money from one federal agency while avoiding the Internal Revenue Service. The IRS has been able to collect only a pittance of the money it is owed — $48 million — by garnishing federal contracts of companies that owe taxes.

Rep. Brad Ellsworth, D-Ind., who has spearheaded legislative efforts to stop tax delinquents from winning federal contracts, said companies that don’t pay taxes can underbid companies that do pay taxes.

The House recently passed two bills that start addressing the problem by targeting federal contractors. One bill would prohibit companies that owe taxes from winning federal contracts. The other would close a loophole in the law that allows contractors to escape paying taxes by hiring employees through shell companies created outside the United States.

The Senate should quickly pass these bills. It is outrageous that the federal government allows contractors to continue collecting taxpayer money while shirking their responsibility to pay taxes.