By SCOTT AMEY
This month has ignited a few hot debates related to federal contractors. One of those is over contractor executive pay reimbursement--a concern for a bipartisan group in Congress. Senators Barbara Boxer (D-CA) and Charles Grassley (R-IA) and Representative Paul Tonko (D-NY) have urged the "Super Committee" to help reduce the deficit by limiting taxpayer-funded salaries for government contractors.
Rep. Tonko has even proposed the Stop Excessive Payments to Government Contractors Act of 2011 (H.R. 2980) to limit the salary contractors can bill to taxpayers, keeping it under the level earned by cabinet-level secretaries (currently just under $200,000 per year).
Rep. Tonko told POGO:
I have joined my colleagues to strongly encourage the Joint Select Committee on Deficit Reduction to include in their plan my legislation which caps contractor salaries at $200,000. The taxpayers can no longer afford to reimburse private contractors for salaries that are more than three times the pay earned by Cabinet Secretaries, and nearly twice the pay of the President. Doing business with the federal government means that private companies have to live within the limits of the budget–these reimbursements need to be brought into line, and that will help taxpayers save billions of dollars over the next decade.
The proposal would expand the cap on executive compensation to all contractor employees and reduce this cap to $200,000. Currently, $693,951 in executive compensation--which includes wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans--is allowable under a federal contract. (Note--while the White House and Congress have frozen federal pay, the White House hasn’t released a 2011 figure for the contractor executive pay reimbursement cap, estimated to be $750,000 (see p. 21), despite asking for a cap of $200,000 for contractor executives.)
POGO supports, as it has for years, congressional efforts to reduce taxpayers' burden for highly compensated contractor employees. Reducing the cap and applying it to all contractor employees would help reduce the burden on taxpayers. Taxpayers shouldn’t have to subsidize compensation that is more properly payable from contractor profits. The amount currently reimbursable to contractors significantly increases the cost of government contracts.
Contractors oppose any reduction of the cap, arguing that “[r]elying solely on the government scale would place both government agencies and private sector companies at a significant disadvantage in the competition for talent.”
This entire debate reminded one POGO follower of a 1992 Calvin and Hobbes cartoon being passed around in the wake of the "Occupy" movement. I’ll share it here, and let you be the judge.
Another debate is over the 3 percent withholding tax for contractors. But I’ll leave for another day, although the problem with contractors owing federal taxes is quite pervasive, including contractors working for the IRS.
Scott Amey is POGO's General Counsel.