14. THE DEFENSE INDUSTRY: AMERICA'S BILLION DOLLAR
After the reports of luxury-priced toilet seats, hammers, and coffee
makers, it might be difficult to think there is anything the press hasn't
publicized about America's defense industry. However, in this case,
it is a matter of piecemeal press coverage of individual defense contractor
malfeasance which fails to present the overall story in a context that
would lead to some significant reform. It is time to end the gravy-train
American munitions manufacturers have been on since World War II when
they were given special privileges to stimulate their war effort. Following
are some specific items that require press attention and congressional
TAXES: Under an extraordinary loophole, called "completed contract
accounting," defense firms can delay paying taxes almost indefinitely
as long as they continue to win new contracts. Five of the nation's
top military contractors earned profits totaling $10.5 billion in the
years 1981, 1982, and 1983, but did not pay a cent in Federal income
taxes. In the same three year period, the top 12 publicly-held military
contractors earned $19 billion in profits and paid just $296 million
in Federal income tax :- an average tax rate of 1.5 percent. Meanwhile,
the Federal tax code says that all corporations must pay 46 percent
of their income over $100,000 in income taxes.
EXPENSES: Millions of tax dollars are spent on corporate public relations
for foreign travel, country club memberships, giveaway souvenirs, glossy
advertising, and entertainment.
CONTRACT REFORM: The cost-plus contract system was initiated in 1940
under the crisis atmosphere of WWII. That crisis ended in 1945, but
the munitions manufacturers have continued to fatten their pocketbooks
with this incredible giveaway contractual system.
PERFORMANCE: The Defense Department allows its contractors to pocket
millions of dollars for shoddy work while letting them act as inspectors
of their own projects and rarely forcing them to repair their mistakes.
After some extraordinary examples of corporate crime by leading defense
contractors last year, Secretary of Defense Caspar Weinberger felt compelled
to announce a "whole new approach to doing business with the Pentagon."
Weinberger ordered contractors to certify that their contract information
That, of course, is not the solution. It is the problem. Contractors
will be glad to certify that the contracts are correct as long as the
contracts guarantee a bloated profit, do not require quality workmanship,
allow unquestioned expenses for public relations and other frills, and
don't require the contractor to pay taxes like the rest of us. Who wouldn't
certify a contract like that?
THE NEW YORK TIMES, 10/16/84, "5 Big Military Builders Paid No
Taxes for 3 Years," by Wayne Biddle; and various other press reports.