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As Defense Budget Soars Security Firms Reap Huge Profits, Go Offshore to Avoid Taxes

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The Obama administration is seeking to increase the obscenely bloated U.S. Defense Department budget to a whopping $708 billion for fiscal year 2011, 3.4% above 2010's record level, The Wall Street Journal reported.

While the overall budget deficit will balloon to a staggering $1.6 trillion in 2011, the result of massive tax cuts for the rich, declining revenues, a by-product of capitalism's economic meltdown, imperial adventures abroad and general corporate malfeasance (the old tax-dodge grift), the administration plans to cut $250 billion over three years from non-military "discretionary spending" on domestic social programs.

However, as the World Socialist Web Site points out: "President Barack Obama has done nothing to reverse decades of wage stagnation, mounting poverty, and attacks on the social welfare system. On the contrary, following George W. Bush, he has seized on the crisis to redistribute wealth to a tiny financial elite through the ongoing bailout of the finance industry."

It is no small irony that despite stark budget figures and an even bleaker future for the American working class, Washington Technology reported January 28 that the "29 largest publicly traded defense contractors increased their use of offshore subsidiaries by 26 percent from 2003 to 2008."

Citing reports by the Government Accountability Office (GAO), journalist Alice Lipowicz disclosed that the "subsidiaries helped the contractors reduce taxes, in part by avoiding Social Security and Medicare payroll taxes for U.S. workers hired at the foreign subsidiaries."

Considering that the Pentagon hands out some $396 billion annually to contractors, outsourcing everything from "in theatre" construction in places like Afghanistan and Iraq to pricey "intelligence analysts" at secret state agencies, cash not spent on payroll taxes by dodgy firms slices another hole into the already-shredded social safety net.

Amongst the largest firms cited in GAO's 2008 report, updated in January 2010, Oracle Corp., operates in 77 tax havens; Boeing Co., 38; Dell Inc., 29; BearingPoint Inc., 28; Computer Sciences Corp., 21; Fluor Corp., 34; General Dynamics, 5; Harris Corp., 13; Hewlett-Packard, 14; Honeywell International, 7; ITT Corp., 18; L-3 Communications, 15; Sprint Nextel, 7.

Many of the firms are heavily-leveraged in the lucrative "homeland security" market and provide technology and "cleared" intelligence analysts, many of whom jumped ship from government service for richer, if more dubious employment, to a host of secret state agencies including the CIA, DIA, NSA as well as ultra-secretive outfits engaged in global satellite surveillance such as the National Reconnaissance Office (NRO) and the National Geospatial-Intelligence Agency (NGA).

You would think these firms, flush with record profits since the U.S. embarked on its "War on Terror" in 2001, would do something as pedestrian as paying their fair share of taxes or providing benefits to workers, given severe budgetary pressures on domestic programs, dizzying housing foreclosure rates and skyrocketing unemployment.

You'd be wrong, however; dead wrong.

An "Island Paradise" Where Profits Go to Hide

Despite fabulous riches showered on shareholders by taxpayers, the Military-Industrial-Security-Complex will not rest until every dime has been squeezed from the American people, swelling corporate abdomens well-past the bursting point.

In cinematic terms, think of America's ruling elite as a horde of sociopathic zombies gobbling everything in sight. Instead of screaming "Brains!" as in Sam Raimi's cult classic, The Evil Dead, corporate zombies cry "Cash! I Need Cash!" as they take down entire nations in one rapacious bite!

A new report published by the Government Accountability Office (GAO) in January found, "Many of the top 29 U.S. publicly traded defense contractorsthose with $1 billion or more in DOD contracts in fiscal year 2008have created offshore subsidiaries to facilitate global operations. Between fiscal years 2003 and 2008, they increased their use of these subsidiaries by 26 percent, maintaining at least 1,194 in 2008."

GAO auditors revealed that corporate subsidiaries in tax havens such as the Bahamas, Switzerland, the Cayman Islands, Bahrain, Netherlands Antilles, Jersey, Bermuda, the Channel Islands, Luxembourg, Macao, Lebanon, Liechtenstein and Cyprus "helped the 29 contractors reduce taxes, with about one-third decreasing their effective U.S. corporate tax rates in 2008 in part through the use of foreign affiliates, lower foreign tax rates, and indefinite reinvestment of foreign income outside of the United States."

A convenient shell game since the "indefinite reinvestment of foreign income" isn't taxable until its been repatriated to the United States. What do you think the chances are of that happening any time soon?

As an added incentive that helped firms hit the old corporate "sweet spot," the congressional watchdogs found that "companies principally used offshore subsidiaries to hire U.S. workers providing services overseas on U.S. government contracts in order to avoid Social Security, Medicareknown as Federal Insurance Contributions Act (FICA)and other payroll taxes. This practice allowed contractors to offer lower bids when competing for certain services and thereby reduce costs for DOD."

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Tom Burghardt is a researcher and activist based in the San Francisco Bay Area. In addition to publishing in Covert Action Quarterly and Global Research,, his articles can be read on Dissident Voice, The Intelligence Daily, Pacific Free Press and (more...)
 

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Just another way the conservative right is helping... by liberalsrock on Tuesday, Feb 16, 2010 at 1:10:28 PM