Bush closes defense contractor tax loophole

This week President Bush signed a bill closing the tax loophole that defense contractors have been using to avoid paying millions of dollars in payroll taxes. The Heroes Earnings Assistance and Relief Tax Act includes a provision that will treat foreign subsidiaries of U.S. government contractors as American employers.

For years defense companies and other U.S. businesses have been setting up shell companies in the Cayman Islands and other tax havens to avoid paying taxes on their American workers. According to the Associated Press, the Senate Finance Committee estimates that thousands of companies have registered in the Caymans to dodge taxes, and the Joint Committee on Taxation estimates that shutting the employment tax loophole will bring in about $846 million in revenue over 10 years.

What this will mean for companies in the U.S. South is a story that remains to be told. Historically disproportionate shares of defense contracting dollars have flown to Southern states, many of which boast large concentrations of defense contractors, according to the Institute for Southern Studies' previous analysis of the South's economic ties to the military industry.

In other news this week, while defense contractors may have taken a hit with the latest bill reigning in tax scams, oil companies just got a major boost in Iraq. The New York Times reported that four Western oil companies - Exxon Mobil, Shell, Total and BP - are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization. The companies are currently in talks with Iraq's Oil Ministry for no-bid contracts to service Iraq's largest fields. The oil deals will be the first commercial work for the major companies in Iraq since the American invasion.