Bipartisan Proposal to Require Federal Contractors to Pay Taxes Passes Senate

WASHINGTON, D.C. – U.S. Senators Bob Casey (D-PA), Barack Obama (D-IL), Dick Durbin (D-IL) and Tom Coburn (R-OK) today lauded the Senate’s passage of their amendment to the Department of Homeland Security (DHS) Appropriations bill that would withhold federal homeland security contracts from companies and grantees that have not paid their federal taxes.  According to studies by the Government Accountability Office (GAO), thousands of federal agency contractors owe billions of dollars in unpaid taxes.  This amendment will withhold large DHS contracts from businesses and organizations that failed to file tax returns and were delinquent on payroll taxes for a significant period of time. 

“The fact that these contractors continue to receive millions of dollars in federal contracts despite having unpaid tax bills is unacceptable,” said Senator Casey.  “If you don’t pay taxes, you can’t get a taxpayer-funded contract.  I want to thank my colleagues on both sides of the aisle for recognizing the importance of holding these contractors accountable so that we can reduce the abuse of the tax system.”

“Our government should not reward companies that fail to pay their taxes with federal contracts,” said Senator Obama.  “Working Americans don’t get a free pass if they are unable to pay their taxes when they are due, and corporations shouldn’t either.  This amendment 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.”

"The notion that we should reward companies who fail to pay taxes is hugely misguided," Durbin said. "Billions in unpaid taxes from thousands of federal contractors, and the inability for agencies to take action is unacceptable and we need to put a stop to it."

Representative Brad Ellsworth (D-IN) originally introduced the Federal Contractor Accountability Act (H.R. 1986) in the House of Representatives in April.

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 the Department of Homeland Security amongst other agencies.

Neither federal law nor GSA policies require federal agencies, like the DHS, to 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, tax debt is not considered in the determination.  Without a systematic review process, the federal government ultimately continues to award lucrative contracts to companies with significant tax debt.  This amendment will withhold federal contracts and grants over $5 million from tax delinquent businesses and organizations.

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