This Boston Globe story came out yesterday, but I don’t think it’s news to too many people. Kellogg Brown & Root and Halliburton are systemically avoiding paying proper taxes on their employees to the tune of hundreds of millions of dollars of money lost to the US. They’re doing this by using shell companies in the Cayman Islands to hire American workers who work in Iraq, thus reducing their tax, workers compensation, and social security liabilities.
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.
A Globe survey found that the practice is unusual enough that only one other major contractor in Iraq said it does something similar.
“Failing to contribute to Social Security and Medicare thousands of times over isn’t shielding the taxpayers they claim to protect, it’s costing our citizens in the name of short-term corporate greed,” said Senator John F. Kerry, a Massachusetts Democrat on the Senate Finance Committee who has introduced legislation to close loopholes for companies registering overseas.
With an estimated $16 billion in contracts, KBR is by far the largest contractor in Iraq, with eight times the work of its nearest competitor.
KBR declined to release salary information. But workers interviewed by the Globe who served in a range of jobs said they earned between $48,000 and $85,000 per year. If KBR’s American workers averaged even as much as $63,000 per year, they and KBR would have owed more than $100 million per year in Social Security and Medicare taxes, split evenly between them. Over the course of the five-year war, their tax bill would have been more than $500 million.
The whole story goes into much further detail on how KBR and Halliburton established their profiteering operation. Recall that Halliburton recently moved their headquarters to Dubai. Companies like Halliburton and KBR are anti-American war profiteers, milking the American tax payer of hundreds of millions, if not billions, of dollars they’ve received in sweetheart, no-bid deals. They’re denying their American workers wages and protections that they deserve and they’re forcing those liabilities back onto the American tax payer.
Over at Balloon Juice, John Cole quotes one of his commenters response to this story:
This is fucking ridiculous. You literally cannot go one fucking day without hearing about someone tied to the Bush administration doing something patently fucking evil, borderline illegal, or screwing the public. You’d think they’d need to at least go on vacation at some point after the last 7 years of this. It’s got to be hard work finding something reprehensible to be part of every single day.
The Globe piece cites an angry John Kerry. I’d hope that Kerry and other congressional Democrats investigate these abuses, pass laws banning this kind of off-shore avoidance of obligations to American workers, and punish those who are profiteering in the Iraq war.