14. THE DEFENSE INDUSTRY: AMERICA'S BILLION DOLLAR RIP-OFF

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 reform:

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 is correct!

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?

SOURCES:

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.