WASHINGTON, DC – Senators John Kerry and Barack Obama sent a letter to the Chairman and Ranking member of the Permanent Subcommittee on Investigations, Sen. Carl Levin and Norm Coleman respectively. Kerry and Obama asked that their colleagues consider investigating government contractors that circumvent paying payroll taxes by hiring employees through offshore shell companies. Last month, Kerry and Obama introduced the Fair Share Act of 2008 to close this tax loophole and save the American taxpayer an estimated $846 million over ten years. In the House, the bill is being sponsored by Reps. Brad Ellsworth and Rahm Emanuel, and was recently included in the Taxpayer Assistance and Simplification Act of 2008.

“Abusing offshore tax loopholes is wrong and at least one greedy company has fleeced the American taxpayer to the tune of hundreds of millions since the Iraq war began,” said Senator Kerry. “The American people who play by the rules and foot the bill for this war in Iraq deserve to know just how many companies are avoiding paying their fair share of taxes and how much it’s costing our economy. The Senate has a responsibility to shed some sunlight on the tax practices of these government contractors, and we will not be satisfied until these kinds of loopholes are eliminated once and for all.”

“It’s the responsibility of American companies to pay their taxes and ensure that their employees’ work is counted for future Social Security and Medicare benefits," said Senator Obama. "It's unacceptable for contractors to use foreign shell companies to avoid paying their share of payroll taxes, and that’s why Senator Kerry and I introduced legislation to close this loophole and hold these contractors accountable. I look forward to moving this legislation forward and working to crack down on tax havens and abusive tax shelters.”

Please find the text of Senator Kerry and Obama’s letter below:

April 23, 2008

The Honorable Carl Levin
Chairman
Ranking Member
The Honorable Norm Coleman
Permanent Subcommittee on Investigations Committee on Homeland Security
& Governmental Affairs 199 Russell Senate Office Building Washington, D.C. 20510

Dear Senators Levin and Coleman:

Recently, we introduced S. 2775, the Fair Share Act of 2008, which ends the practice of U.S. government contractors setting up shell companies in foreign jurisdictions to avoid payroll taxes. Representatives Ellsworth and Emanuel also introduced companion legislation. This legislation amends the Internal Revenue Code and the Social Security Act to treat foreign subsidiaries of U.S. companies performing services under contract with the United States government as American employers for the purpose of Social Security and Medicare payroll taxes.

The legislation was introduced in response to a Boston Globe article in which Farah Stockman reported that Kellogg Brown & Root (KBR) has avoided payroll taxes by hiring workers through shell companies in the Cayman Islands. American companies who are benefiting from U.S. government contracts are able to set up foreign subsidiaries in tax havens and treat American workers employed in connection with the contract as employees of the subsidiary. As a result, those employers can avoid Social Security and Medicare payroll taxes and their employees are denied the contributions for Federal benefits purposes.

We bring this issue to your attention because we think it is another example of the abuse of offshore tax havens used in order to avoid the payment of U.S. taxes. We believe closing this glaring loophole is consistent with your efforts to address tax shelters and tax havens. It is unclear how pervasive the practice used by KBR is, but there are numerous federal contractors that have subsidiaries located in tax havens and, as your investigations have uncovered, an abundance of tax professionals willing to help companies shirk their tax responsibilities whenever a loophole can be found.

We are working with the Finance Committee to close this tax loophole, and the House recently included this legislation as part of the Taxpayer Assistance and Simplification Act of 2008. The Joint Committee on Taxation estimates that closing this loophole raises $846 million over ten years.

We request that the Permanent Subcommittees on Investigations investigate this and similar abuses by federal contractors to avoid payroll taxes, and we look forward to continuing to work with you on measures to ensure fairness for American taxpayers.

Sincerely,

US Senator
JOHN F. KERRY

US Senator
BARACK OBAMA

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