Bill targets tax-evading contractors

The top two members of a Senate investigative panel have introduced a measure to crack down on government contractors who dodge federal taxes.

After a panel investigation found that at least 27,000 Pentagon contractors owed about $3 billion in taxes, Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations Chairman Norm Coleman, R-Minn., and ranking member Carl Levin, D-Mich., sponsored a bill directing the Pentagon to create a registry of contractors for tax purposes. The bill, which a subcommittee aide said was a "major priority" for Coleman, was referred to the Armed Services Committee.

Heidi Blumenthal, director of tax and fiscal affairs for the Associated General Contractors of America, said her organization "does not believe that allowing the Department of Defense to do the job of the Internal Revenue Service or take over activities of the Treasury Department would be an effective method of ensuring our tax laws are followed." She said the association was discussing the issue with Coleman's staff.

The subcommittee aide said the bill was likely to receive bipartisan support. "Bless them if they want to lobby against it," he said.

A spokesman for the Senate Armed Services Committee said the panel will examine the legislation but is unlikely to mark it up as a stand-alone bill this session. He said it might be added to the fiscal 2006 defense authorization bill after the August recess. A Pentagon spokesman declined to comment on the bill, citing the agency's policy against offering views on proposed legislation.

The subcommittee's examination of tax evasion prompted the introduction of another bill to increase penalties for operators of tax havens who help individuals and corporations shield assets to avoid paying taxes. A spokeswoman for the Senate Finance Committee, where the bill was sent, noted that Finance Chairman Charles Grassley, R-Iowa, helped enact tax shelter legislation last year. In a joint statement, Levin and Coleman acknowledged provisions passed last year that require violators to pay penalties equal to 50 percent of their profits.

But they said Congress should "take stronger action by denying persons who promote tax cheating not only all of their illegal profits, but also requiring payment of a stiff fine on top of that." The Levin-Coleman bill would require tax shelter operators to turn over all profits, in addition to paying the 50 percent penalty. A Senate Finance Committee aide said Grassley considered similar language before and "would like to pass the harsher penalties that Sens. Coleman and Levin have proposed, but we have been stymied by the House."