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Ellsworth, Towns, Obama Bill to Require Federal Contractors to Pay Taxes Clears First Hurdle

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Location: Washington, DC


Ellsworth, Towns, Obama Bill to Require Federal Contractors to Pay Taxes Clears First Hurdle

A bill written by Reps. Brad Ellsworth (D-IN), Edolphus Towns (D-NY) and U.S. Senator Barack Obama (D-IL) to withhold federal contracts from companies and grantees that have not paid their federal taxes cleared its first hurdle today. According to studies by the Government Accountability Office (GAO), thousands of federal contractors owe billions of dollars in unpaid taxes. The bill, which would withhold large federal contracts from businesses and organizations that fail to file tax returns and are delinquent on their taxes, passed the House Committee on Oversight and Government Reform.

Late last year, a similar provision was included in the Omnibus Appropriations package (H.R. 2764). While the bill was signed into law, the provision is only effective for Fiscal Year 2008. The Contracting and Tax Accountability Act is necessary to make the fix permanent for all federal spending on contracts and grants.

"Every year Hoosiers play by the rules and pay their taxes; I don't think it's too much to ask companies that receive millions, sometimes billions, in taxpayer dollars to do the same. These bad actors don't just cheat our government of tax revenue, they also gain an unfair advantage over businesses that are doing the right thing," said Ellsworth. "This bill is a practical and cost-effective way to ensure all companies compete on an equal playing field and our tax dollars are being used wisely. I hope the House will take it up and pass it soon."

"Our government should not award federal contracts to companies that fail the basic responsibility of paying taxes," said Senator Obama. "Hard-working Americans don't get a free pass if they fail to pay their taxes, and neither should corporate interests. This bill will increase transparency and accountability over how our money is spent, and will ensure that the corporations that receive taxpayer funding play by the rules. I commend Representatives Ellsworth and Towns for their leadership on moving this important bill forward in the House."

In numerous studies, the GAO found that thousands of federal contractors held 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 numerous federal agencies.

Federal law does not require federal agencies 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, a contractor with seriously delinquent tax debt is not disqualified from receiving federal funds. Without a systematic review process, the federal government ultimately continues to award lucrative contracts to companies with significant tax debt. This bill will withhold federal contracts and grants over $5 million from tax delinquent businesses and organizations.


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