STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - March 13, 2008)
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By Mr. KERRY (for himself, Mr. OBAMA, Mr. HARKIN, and Mrs. CLINTON):
S. 2775. A bill to amend the Internal Revenue Code of 1986 and the Social Security Act to treat certain domestically controlled foreign persons performing services under contract with the United States Government as American employers for purposes of certain employment taxes and benefits; to the Committee on Finance.
Mr. KERRY. Mr. President, today Representatives Ellsworth and Emanuel and Senator Obama and I are introducing 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. On March 6 2008, Farah Stockman of the Boston Globe reported that Kellogg, Brown and Root Inc. KBR, has avoided payroll taxes by hiring workers through shell companies in the Cayman Islands. The article estimates that hundreds of millions of dollars in payroll taxes have been avoided a disturbing, yet not all too surprising discovery.
KBR is an American engineering and construction company, formerly a subsidiary of Halliburton, based in Houston, TX. Throughout its history, KBR and its predecessors have won numerous contracts with the United States military. In recent years, however, many of these contracts have been called into question based on everything from wasteful spending to mismanagement and lack of competition. The evasion of payroll taxes is yet one more serious misstep.
The Fair Share Act of 2008 will end the practice of U.S. Government contractors setting up shell companies in foreign jurisdictions to avoid payroll taxes. The 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 U.S. Government as American employers for the purpose of Social Security and Medicare payroll taxes. The legislation will apply to foreign subsidiaries of a U.S. parent. The degree of common ownership applied by the legislation is 50 percent, meaning that the U.S. parent would have to own more than 50 percent of the subsidiary.
In addition, the legislation addresses the situation in which a U.S. subsidiary of a foreign corporation subcontracts with its foreign subsidiary to perform a contract with the U.S Government. In this situation, the legislation would apply to wages paid by the foreign subsidiary to its U.S. employees. The legislation does not address the situation in which the foreign parent contracts directly with the U.S. Government. Present law will continue to apply to totalization agreements. The legislation applies to services performed after the date of enactment.
The bottom line is this: Federal contractors should not be allowed to use tax loopholes to avoid paying U.S. Medicare and Social Security taxes on behalf of their American employees working in Iraq. Furthermore, KBR should not have a competitive advantage over its U.S. competitors because it sets up sham corporations to avoid paying its fair share of U.S. payroll taxes. Failing to contribute to Social Security and Medicare thousands of times over is not shielding the taxpayers they claim to protect, it is costing our citizens.
At a time when as much as $300 billion per year in taxes goes uncollected by the government, and by some estimates more than a third of that money may be related to corporations using offshore tax havens, we should close every loophole possible.
Just last week, the Government Accountability Office, GAO, went to the Caymans to investigate U.S. companies' offshore operations. The GAO went to look at the buildings where U.S. corporations locate shell corporations. These corporations are often nothing more than a computer file. According to the Boston Globe, the KBR Cayman Island corporations do not even have an office or a phone number. I commend Senators BAUCUS and GRASSLEY for requesting this investigation.
As a member of the Finance Committee, I will continue working to close corporate loopholes that are fueled by greed. I urge my colleagues to support ending this egregious practice.
Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.
There being no objection, the text of the bill was ordered to be printed in the RECORD, as follows:
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