This week, President Bush signed into law the Heroes Earnings Assistance and Relief Tax Act, providing tax relief to military families. The Act allows American forces in Iraq and Afghanistan to remain eligible for the Earned Income Tax Credit, gives them tax breaks for buying homes, permits withdrawals from pension plans without penalty, and makes them eligible for the stimulus package.

The House Ways and Means Committee held hearings on the HEART Act at which members of the military and their spouses explained the financial burdens facing military families with multiple deployments for the wars in Iraq and Afghanistan.



That first one is pretty astonishing: Send them out to be killed and then penalize them for not returning alive.

A concomitant piece of legislation, made part of the HEART Act, was the Kerry-Obama
Fair Share Act of 2008 introduced in March. This closed a payroll tax loophole by treating foreign subsidiaries of US government contractors as American employers who will now have to pay into Social Security and Medicare. The bill prohibits federal contractors from evading those taxes by hiring workers through offshore shell companies and gains unemployment benefits for their workers. The revenue produced by closing the payroll tax loophole, roughly $850 million over ten years, is to help pay the cost of the tax relief package for veterans in the HEART Act.

US defense contractors operating overseas avoided paying payroll taxes by setting up offshore shells to hire their workers. A California contractor, Combat Support Associates, created CSA Ltd. in the Cayman Islands soon after winning a $2 billion military support contract, but has no physical presence there. MPRI, a Virginia-based contractor, hires about 400 Americans through a subsidiary based in Bermuda. DynCorp International, who employs American police trainers in Iraq, does it through a wholly owned subsidiary in the United Arab Emirates. They advertise: "No federal income or Social Security taxes are withheld." Also with a shell in the Caymans, Kellogg Brown & Root, a former Halliburton subsidiary, now operating as KBR Inc., screwed the government out of hundreds of millions of dollars in payroll taxes for 10,500 American employees in Iraq.

Obama said in May, when the HEART Act passed the Congress, "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." He’s also said that government contractors setting up these offshore shell companies "turns the idea of patriotism on its head."

A different tax accountability bill that Obama sponsored, S. 2519: Contracting and Tax Accountability Act of 2007, addresses the matter of federal contractors who do not pay their taxes, whether they have offshore shells or foreign contracts or not. More than $7 billion is owed to the Treasury by federal contractors. S.2519 would require any firm bidding on federal contracts to certify that they are not tax-delinquent and bars all firms with tax liens from receiving federal contracts. Federal agency heads who negotiate these contracts would also have a way of determining risky contractors at the pre-award stage through the office of the Secretary of the Treasury.

These are examples of one of the principle components of Obama's
Economic Plan: Paying for this plan and making the tax code more fair relies in part on closing tax shelters, corporate loopholes and corporate tax avoidance.

Of related interest, in 2006, the US Senate passed the Coburn-Obama
Federal Funding Accountability and Transparency Act (S. 2590). The bill was signed into law that December, resulting in a public online federal budget data base of where taxpayers' money is going, showing government contractors, who they are, what they're being paid for what work, and where. USAspending.gov tracks contracts, grants and earmarks, and will track subcontractors.

"By helping to lift the veil of secrecy in Washington," Obama pointed out, "this database will help make us better legislators, reporters better journalists, and voters more active citizens."

Making government more transparent and fiscally responsible is a major part of what Obama has worked for, both in the Illinois Senate and the US Senate, in the small, incremental steps that are so maddening about legislation. With the bully pulpit of the Presidency and a Democratic majority, that agenda can really go places.

More on Obama's ideas on how technology can be used to improve government and enrich democracy can be found here. And here is Obama’s plan for government fiscal responsibility.