First, a recap of how this all went down. It started with this story in the Boston Globe:
Top Iraq contractor skirts US taxes offshore
Shell companies in Cayman Islands allow KBR to avoid Medicare, Social Security deductions
March 6, 2008
CAYMAN ISLANDS – Kellogg Brown & Root, the nation’s top Iraq war contractor and until last year a subsidiary of Halliburton Corp., has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven.
More than 21,000 people working for KBR in Iraq – including about 10,500 Americans – are listed as employees of two companies that exist in a computer file on the fourth floor of a building on a palm-studded boulevard here in the Caribbean. Neither company has an office or phone number in the Cayman Islands.
The Defense Department has known since at least 2004 that KBR was avoiding taxes by declaring its American workers as employees of Cayman Islands shell companies, and officials said the move allowed KBR to perform the work more cheaply, saving Defense dollars.
But the use of the loophole results in a significantly greater loss of revenue to the government as a whole, particularly to the Social Security and Medicare trust funds. And the creation of shell companies in places such as the Cayman Islands to avoid taxes has long been attacked by members of Congress.
Kerry and Obama immediately sprang into action, calling for an investigation and penning a bill to immediately close this loophole with a companion bill in the House by Rahm Emanuel and Brad Ellsworth. It passed both Houses in May, and now …. it is law!!
President Bush signs bill closing tax loophole used by defense contractors
By RICHARD LARDNER , Associated Press
Last update: June 17, 2008 – 7:06 PM
WASHINGTON – President Bush on Tuesday shut a loophole that defense contractors had been using to avoid paying millions of dollars in payroll taxes.
Bush signed into law the Heroes Earnings Assistance and Relief Tax Act, which provides tax relief for military families. Included in the legislation is a provision that would treat foreign subsidiaries of U.S. government contractors as American employers. That means they now have to pay the taxes that finance Social Security and Medicare programs.
Defense companies such as Combat Support Associates and KBR Inc. set up shell companies in the Cayman Islands and other tax havens to avoid paying those taxes on their American workers.
The president shut a loophole?? More like the president was forced into shutting down a loophole it was so beyond the pale and embarrassing, even Dick wasn’t going to step in and stop it from being shut down. The way this whole thing happened, and how swiftly it got done (the first story on it was March, and here we are in June and it is already outlawed) is a sign that pretty soon there will be a new sheriff in town, President Obama, who will not look the other way when corruption rears its ugly head. (And, no, this isn’t technically “corruption”, but it oozes of the culture of corruption the Republicans flourished in).
But this is more than just kicking greedy war profiteering corporations to the curb. This bill also helps veterans in so many ways. As was reported in Mass., this bill will actually affect lives, with the proceeds of closing the loophole:
Included in the bill is a tax provision written by U.S. Sens. John F. Kerry, D-Mass., and Barack Obama, D-Ill., that will provide revenue for the tax breaks for members of the Armed Services and their families by sewing up a tax loop that allowed defense contractors, in particular, KBR (formerly a Halliburton subsidiary known as Kellogg, Brown & Root), to avoid paying their full share of payroll takes by creating shell companies in the Cayman Islands.
The practice allowed contractors to short-change their taxes by $100 million to Social Security and Medicare, according to Kerry’s staff.
With the passage of the bill, Kerry said, “thousands of military families in Massachusetts will receive the benefits they deserve and big companies will pay their fair share of taxes rather than leaving hard working Americans with the bill.”
Obama said that for “the sake of transparency and fairness in our tax system, we cannot allow federal contractors to set up shell corporations in tax shelters and shirk their responsibility to pay payroll taxes for their American employees.”
The HEART Act includes another provision Kerry wrote with U.S. Sen. Gordon Smith, R-Oregon, called the Active Duty Military Tax Relief of 2007 that is designed to bolster small businesses that employ reservists.
The Kerry-Smith language included in the HEART bill provides small businesses that employ fewer than 50 workers with a 20 percent tax credit of the salary differential they pay the reservist employee who is called up for active duty.
This was a great week, righting a terrible wrong perpetrated by KBR while helping our service members and their families. Thank you Senator Kerry and Senator Obama. I will end this diary with the portion of the press release which gives all the details of how the HEART Act will help veterans for the policy wonks who want to know exactly what is in the bill.
The HEART Act includes several provisions included in legislation introduced by Kerry and Senator Gordon Smith (D-Oregon) in January of 2007. The Active Duty Military Tax Relief of 2007 aimed to bolster military families and small businesses that employ reservists.
The HEART Act would:
* Enable active duty military personnel to qualify for economic stimulus payments. The HEART Act would clarify that active military who file a joint tax return would be eligible for the stimulus rebate payment even if the spouse does not have a Social Security number;
* Make permanent the ability to include combat pay as earned income for purposes of the Earned Income Tax Credit. The earned income tax credit (EITC) is a refundable tax credit for eligible low-income workers. Generally, “earned income” includes taxable wages, salaries, tips, and other employee compensation. Some low-income military families who receive the EITC based on taxable military pay could lose this tax credit if they begin receiving non-taxable combat pay and have no other earned income on which to claim the EITC. The HEART Act would extend the provision that allows America’s military men and women to count combat pay for the purposes of qualifying for the earned income tax credit.
* Make permanent and modify qualified mortgage bonds used to finance residences for veterans. To give our nation’s brave veterans greater access to homeownership, the HEART Act would permanently extend the provision that allows veterans to qualify for state-operated, tax-exempt mortgage revenue bond programs. This program provides financing to provide lower-income individuals without regard to the general first-time home buyer requirement;
* Modify retirement plan protections for reservists who have given their lives in service or who are disabled while serving our country. The HEART Act would modify the Uniformed Services Employment and Re-employment Rights Act to: 1) allow the day prior to the date of death to be treated as the date the employee returned to work for purposes of triggering payment of benefits under a qualified plan; and 2) permit an employer to make certain contributions to a qualified pensio
n plan on behalf of an employee who is killed or becomes disabled in combat;* Modify treatment of differential wages paid by an employer to an employee who becomes active duty military. In the case of an employee who is called to active duty with the United States uniformed services, some employers voluntarily agree to continue paying the level of compensation that the service member would otherwise have received from the employer during the service member’s period of active duty. This “differential pay” is not treated as wages for purposes of the federal income tax withholding rules that apply to an employer’s payment of wages. The HEART Act would treat differential wages paid by an employer to an employee who becomes active duty military as wages for withholding and retirement plan purposes;
* Extend the period for filing tax refund credit claims arising from Department of Veterans Affairs (DVA) disability determinations. Because of the lapse of time between retirement and the determination of, or the onset and determination of, a service connected disability, the HEART ACT would extend the statute of limitations to permit retired military personnel to file claims for refunds one year after the date of the determination of a service-connected disability is made;
* Make permanent the special rules that permit penalty-free withdrawals from retirement plans. Generally, there is a ten percent withdrawal tax on early distributions from certain retirement plans. Because reservists called to active duty may need access to amounts that they have contributed to their retirement plans in order to meet their personal financial obligations while serving our country, the HEART Act would extend special rules that permit active duty reservists to make penalty-free withdrawals from their retirement plans, and a reservist has two-years from the last day of the active duty period to contribute distributions to an IRA;
* Permit recipients of military death benefit gratuities to roll over the amounts received to tax-favored accounts for retirement and education savings. To enable survivors of servicemembers should be able to contribute death benefit proceeds to accounts to save for future retirement and education needs, the HEART Act would permit recipients of military death benefit gratuities to roll over the amounts received, tax-free, to a Roth IRA or an Education Savings Account; and
* Provide a tax credit for small employers with respect to differential wage payments to employees who are on active military duty. Many employers voluntarily eliminate any pay gap between the reservists’ civilian pay and military pay by paying the difference. The proposal would treat the pay gap as wages requiring information reporting and subject the differential pay payments to withholding. The proposal would also make it easier for employers to contribute to their activated employee’s retirement plans.
The HEART Act would also permanently allow the Social Security Administration to disclose tax return information to the DVA for purposes of determining eligibility for certain veteran’s programs; clarify that certain tax rebates and benefits are excludible from income for volunteer firefighters; clarify the application of the “five-year requirement” to the sale of a principal residence by a Peace Corps volunteer; clarify that state payments to service members are treated as qualified military benefits; and provide for permanent exclusion of gain from the sale of a principal residence by certain employees of the intelligence community.
Supplemental Social Security Income
To ensure fairer treatment of military families who depend on Supplemental Security Income payments, the HEART Act would:
* Allow most military cash allowances beyond basic pay to be treated as earned income for purposes of determining Supplemental Security Income (SSI) eligibility and benefit amounts for military families, and treat certain housing payments as in-kind support and maintenance;
* Disregard state annuity payments paid to blind, disabled, and aged veterans when determining SSI eligibility and benefits; and
* Disregard allowances paid to all Americorps volunteers for the purpose of determining SSI eligibility and benefit amounts.
Revenue Provisions
* The HEART ACT would, revise tax rules on expatriation. American citizens and long-term U.S. residents are subject to tax on their worldwide income. Under current law, taxpayers can avoid taxes by renouncing their citizenship or terminating their residence. The Heart Act would tighten current law rules to ensure that certain high net-worth taxpayers cannot renounce their citizenship or terminate their residence in order to avoid U.S. taxes. Under this provision, high net-worth individuals would be treated as if they sold all of their property for its fair market value on the day before such individual expatriates or their residency would be terminated. The gain would be recognized to the extent that the aggregate gain recognized exceeds $600,000 (which will be adjusted for cost of living in the future).
* Modify treatment of certain foreign persons performing services under contract with United States. The Heart Act generally would treat foreign subsidiaries of American companies performing services under a U.S. government contract as American employers for employment tax purposes. The domestic parent would be jointly liable for employment taxes imposed on the foreign subsidiary.
* Increase general failure to file return penalty. The Heart Act would increase the general penalty for failure to file tax returns to the lesser of $135 or 100 percent of the amount required to be shown on such return.
Mental Health Parity
* The HEART Act would extend current law excise tax for failure to comply with the mental health parity requirements for benefits for services furnished on or after the date of enactment through December 31, 2008. Current law requires certain group health plans to provide the same coverage for mental health benefits that they provide for medical and surgical health benefits. The HEART Act would extend the imposition of a $100-per-day excise tax on group health plans that fail to comply with this requirement.
In addition to it being a step in holding KBR accountable, it both ends an abuse and gives soldiers benefits they deserve.
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p>This should be something Obama could use to counter the RW smear that he is not patriotic. It also adds nicely to his work on controlling bundling by lobbyists on the ethics bill. McCain may talk ethics in spite of his Keating 5 past, but Obama pushed laws with real teeth.
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p>As to Kerry, there is no one who has done more to fight corruption. His willingness to stand against nearly the entire power elite to fight OBL’s bank, BCCI, was inspiring. It was his Cunningham amendment that will take away pensions of House and Senate lawmakers who are guilty of accepting bribes and other types of corruption.
The defense contracting industry has flourished under Bush II and is mired in corruption. It’s about time they were reined in.
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p>It’s bad enough that the military was down-sized and active duty positions turned over to contracting firms that charge the government exhorbitant amounts to mann these positions. To be able to weasel out of paying their fair share of taxes was adding insult to injury.
Kerry lapdog posts pro-Kerry or anti-opponent diary. Kerry flash mob quickly “recommend” the diary, so it gets to the top of the page, and/or comment on it with brilliant focus-group talking points such as “His willingness to stand against nearly the entire power elite to fight OBL’s bank, BCCI, was inspiring.”
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p>Then they all disappear again until the next Kerry topic is posted up there. And they will all feign indignation when called out.
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p>Congrats to Kerry for a job well done! I just wish some of your supporters were as passionate about other progressive causes as they are about getting your latest press releases out there.
and you will see posters who are primarily interested in Obama, posters who are interested in the Iraq War, posters interested in health care, posters interested in Congressional races, posters interested in studying the religious right, etc., etc., etc.
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p>I like John Kerry and Barack Obama, as well as foreign policy. And my history on DailyKos backs this up. That is why a community blog is so great: everyone can focus on what they are interested in, and it adds up to a lot of topics covered.
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p>So …. I don’t know what your problem is with my covering this story. I think it is important, and I have been following it since March. The president just signed the bill this week. It is news.
I don’t hang out on DailyKos, but I can assure you that this “flash mob” mentality of Kerry supporters is unique to John Kerry on BMG. Sure there are Obama supporters or local race volunteers and several single-issue advocates, but John Kerry is unique in the number of people who simply hit-and-run. You cannot tell me that Ted Kennedy isn’t more beloved than John Kerry and yet we don’t see this kind of hero-worship accompanying our Senior Senator.
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p>I honestly don’t know anything about you, beachmom, but a quick click on your profile (or that of Kirsten or Luftmensch or Noisy Democrat or Karenc or any of a handful of others) shows that you ONLY post and recommend topics related to John Kerry or Ed O’Reilly. The coincidence is just too uncanny. How is it that all these people are so passionate about the candidate but not any of his individual causes and you all seem to show up at the same time to recommend and rate each other? You have no opinion on the income tax rollback? Or your State Rep race? Or H1B? I’m sorry, but it hurts your credibility.
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p>(Disclosure: I am not an O’Reilly supporter.)
community become smaller? That unless people fall within your purist notion of what the right BMG poster must be, they should just go jump off a bridge and never post here again?
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p>Listen, Chewie (that is your name, isn’t it?), my diary is chock full of information and NEWS about the Senator from Mass. That is both relevant to progressive values AND Massachusetts. Kerry has a lot of netroots support, and you’re just going to have to accept that, and NOBODY is going to bully me off this board, because they don’t like my style or writing habits. As my name suggests, I am a Mom who doesn’t always have time to post, but I do the best I can. God, I mean, don’t you have anything better to do than to police posters who want to participate on BMG?
This isn’t about this particular post or any one poster. This is about the body of work, the seemingly coordinated efforts from the same cast of characters who only hit-n-run on Kerry topics. There is nothing else like it on any issue or any candidate on BMG (and no, a half dozen posts by the O’Reilly people six months ago isn’t the same.)
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p>I’m not trying to “bully” anyone off this board. In fact, I’d love to see you and your friends on here more often, posting things other than the latest press release or hatchet job. I’m sorry, but until then you’re going to have a credibility issue.
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p>If you think I’m being petty, take 5 minutes and click on the profiles of all the people I mention above. Your post above does not exist in a vaccuum and either you just can’t see that or you hope we don’t.
EORification cult swarmed early on against Kerry. EOR started out negatively and continued negative right until he revealed himself with his support for the SBVT.
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p>This is a positive diary about Kerry and Obama and any honest liberal/progressive should applaud them for this work
I certainly do have more pet issues than the flash mob.
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p>On Ryan’s thread I listed all the EOR/JFK diaries. I realize that those diaries made me think about what is wrong with the Senate. Arguing with O’Reilly on some of them was particularly illuminating for me.
That’s far too interesting a comment upon which to trail off…
Geez, is there no room on this site for a Kerry supporter? WTF? Is there no room on this for a Kennedy supporter either if Ted has a contested primary some day? How about a McGovern supporter if Jim has a contest primary some day?
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p>This place feels like Salem during the days when outing witches was cool.
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p>And as for painting Kerry’s supporters as disinterested in other progressive causes, you have no way of knowing that. None whatsoever. HFS, you’d think supporting John Kerry means you’re a closeted conservative Republican around here.
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p>Really, some of you people need to get a fucking grip.
Thanks.
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p>lightiris, this isn’t about being a supporter of any one candidate. I can’t say this enough- I am not an O’Reilly supporter. I don’t have a dog in this fight.
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p>What I resent is this coordinated effort by all these same people who show up at the exact same time, post at the same time, recommend each other, rate each other 6’s and then disappear again until the next time.
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p>You shouldn’t have to be a “regular” to have an opinion, but if you blow smoke up my ass and tell me that you are and all your fellow Kerry “netroots supporters” are simply regular citizen-bloggers who coincidentally just happened to visit BMG for the first time in weeks and converge on the same thread at the same time, then I’m going to call you on it.
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p>If you think I need to “get a fucking grip” as you so eloquently put it, then I suggest you re-read ALL my comments on the topic and follow the profiles of the people I called out. If, at that point, you still think I’m out of line, then please say so.
to post in good faith irrespective of the issues that compel them or the fact that other people are similarly compelled.
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p>I lurk a lot and comment infrequently. I read everything, but only bother to comment on a few issues that resonate with me. Does that make me suspect? What if there were other people like me out there who posted similarly? Does that make us a posse or something? Does that make my (or our) views illegitimate?
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p>Generally I enjoy your comments and have no issues with what you write or how you write it, but I think you are wrong here. So what if they ARE a posse? Who cares? That’s what the scroll button is for. Personally, I don’t care if they are or aren’t; they are good Dems posting in good faith about an elected official they believe in. If someone were challenging Jim McGovern, I know I might be inclined to go to a website that deals with political issues and support him. Does that make my participation wrong or second rate?
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p>Engage them on the issues, but this “outing” crap is just wrong, imho.
I see we will disagree on this, but I appreciate your candor. I truly believe this is a different animal than than simply lurking and then posting an occasional comment, but I will stop spinning my wheels on this. We, collectively, have bigger fish to fry.
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p>Eh?
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p>KBR’s not paying SS and Medicare, and neither are KBR employees. Mr. Kerry fixes this egrecious loophole so that now KBR pays taxes. Then KBR bills the Defense Department more to cover the cost of the added payroll cost.
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p>Bottom line: Defense Department gives money to Social Security. Social Security is running a current surplus, the current surplus of which is going into the Treasury to fund the war. So DD give $ to SS which gives it back to DD.
money go from one pocket to another, something crept under the rug.
But in this circle of funding, it appears that it has been another way to transfer money into the Defense Budget without actually acknowledging the expense. So the recent federal budgets were really overrun by an even greater amount, and the future budgets will be short by a comparative amount. Where is the GAO on this?
That Obama has essentially gone MIA since the FISA “compromise”. It would have been nice to have the Democratic nominee for President, who just happens to be a Senator, take a greater role in trying to defeat it.
Even if it takes an election campaign to get BO to push a bill like this I still support it. Unlike many on this site, I support good ideas and candidates based on their relative merit and not their party affiliation. The bad news is companies in general will figure out ways around laws so hopefully new laws will follow to counter the next move by corporations. And let’s not paint companies who do things like this eveil. They are following laws which our lawmakers write.
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p>American citizens (like BO, Kerry, Kennedy, Bush, myself… ) are not scumbags for taking legal tax deductions on our taxes. No matter how unfair a tax deduction may sound (gambling losses, sales tax on my new Gulfstream…) , as long as we all follow the law it is legal and I assume ethical. If the deduction is outlandish then the law will get changed.
This diary is 1000x better than the other Kerry one. You presented an issue, didn’t go out of your way to skew it, used critical thinking, gave plenty of facts and context, etc. Heck, I think I’ll even recommend it!
If indeed all that is happening is that KBR’s new tax load will be passed on to the Defense Department in the form of higher bills, how does this mean that there will be “more money for vets”?
I happen to know a bit about the Contractor biz. Tomorrow, if I were so inclined, I could sign up as a contractor in Iraq. There’s many jobs out there, from expat tax lawyer to kitchen worker to gunnery instructor. Pay would range, but it’s tax free to $80K, with no benefits.
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p>Now SS and Medicare must now be withheld. The “Heart Act” just made the cost of employment more expensive.
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p>Haliburton, and KBR will NOT bear the cost of that added tax.
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p>Change your headline: Obama & Kerry deal Haliburton a major blow.
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p>Add “job” to that sentence and it’s closer to reality.
The proceeds from closing the loophole will go to the vets. As far as other scenarios referred to, that is independent of this bill.
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p>The ‘loophole’ was that offshore employers didn’t pay SS or Medicare. Now they do. They pay the additional taxes to Social fund and Medicare, not to the vets. Right?
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