Saturday, November 12, 2011

Defense Spending, Bogus Parts, Transnational Mergers, Outsourcing & Budget Cuts

Politics & Defense Contractors > CEO Pay & Corporate Taxes > American Taxpayers & Jobs

Bethesda, Maryland is just northwest of Washington, D.C. and is one of the most affluent and highly educated communities in the country. In 2009 Forbes ranked Bethesda second on its list of America's Most Livable Cities. Bethesda is also home to a number of corporate and government headquarters, such as the defense contractor Lockheed Martin. The three largest defense companies in the world are Lockheed Martin, Northrop Grumman and Boeing - the three powerhouses of American business.

Lockheed Martin is one of the world's largest defense contractors. In 2009 74% of its revenues came from military sales. It received 7.1% of the funds paid out by the Pentagon. It received $36 billion in government contracts in 2008 alone, more than any other company in history.

In 2010 Lockheed Martin's fourth-quarter net profits rose 19% to $983 million. Sales for the quarter rose 4.8% to $12.79 billion. The results were helped by a lower effective tax rate of only 22.5% (The latest earning report is here)

In January 2010 Northrop Grumman announced that it was also moving its headquarters to the Washington DC area. Wesley Bush, the new CEO of Northrop Grumman, stated that the company needed to be located closer to Capitol Hill lawmakers. Northrop Grumman's effective corporate tax rate for 2010 was only 21.5 percent.

In a press release, Citizens for Tax Justice declared that Boeing basically did not pay any U.S. corporate income taxes between 2008 and 2010, even as it reported around $10 billion in profits. Not one of the three largest defense contractors paid the actual 35% corporate tax rate.

The 25 top United States companies paid more to their chief executives in 2010 than they did to the federal government in taxes, according to a study done by the Institute for Policy Studies. There's the top 1% of wealthy Americans (bankers, oil tycoons, hedge fund managers) and then there's the top 0.01% of wealthy CEOs who work for military contractors. (Read: War Profiteers). The top 2010 executive salaries in defense was:

  • Lockheed Martin CEO Robert Stevens: $21.9 million. (2009 $20.4 million)
  • Northrop Grumman CEO Wes Bush: $22.8 million.
  • Boeing CEO James McNerney: $19.4 million.

And the vast majority of these CEO salaries were paid as stock-options and only paid a 15% capital gain tax on their personal earnings, while most middle-class incomes are taxed around 25%.

Lockheed Martin does work for more than two dozen government agencies including the Department of Defense and the Department of Energy, Department of Agriculture, and the Environmental Protection Agency.

Lockheed Martin is also involved in surveillance and information processing for the CIA, the FBI, the IRS, the National Security Agency (NSA), the Pentagon, the Census Bureau and the U.S. Postal Service. (Essentially involved in every aspect of an average American's life.)

But Lockheed Martin also ranks #1 on the 'contractor misconduct' database maintained by the Project on Government Oversight, a Washington-DC-based watchdog group. Since 1995, Lockheed Martin has agreed to pay $577 million to settle fifty-four instances of misconduct.

Lockheed Martin's lobbying expenditures in 2009 and 2010 exceeded $10 million in both years, and the Federal Election Committee reports it spent over $1 million in 2011 from its PAC fund, the Lockheed Martin Employees Political Action Committee.

(Below) April 01, 2006 - President George W. Bush sits next to Robert J. Stevens, president and CEO of Lockheed Martin at a trilateral meeting with their counterparts from Mexico and Canada at the North American Leaders' Summit in Cancun, Mexico. (AP photo by Charles Dharapak)

Obama - "The Corporate Warlord"

The Department of Defense last year told Congress of plans to sell up to $103 billion in weapons to overseas buyers, a staggering rise from an average of $13 billion a year between 1995 and 2005.

Defense giants like Lockheed Martin, Northrop Grumman and Boeing have been increasingly trying to peddle their wares to well-financed international customers, and they have a surprising ally: President Obama.

"Obama is much more favorably disposed to arms exports than any of the previous Democratic administrations," says Loren Thompson, a veteran defense consultant.

Or, as Jeff Abramson, deputy director of the Arms Control Association, puts it: "There's an Obama arms bazaar going on."

American-made arms are widely considered the best and most coveted weapons in the world. Obama is also backing a massive push to rewrite the rules that govern arms exports, a process that some say will reduce oversight of U.S. weapons sales (again, "jobs" will always be the selling point, even if those jobs go overseas).

he Federation of American Scientists - Highlighting U.S. government policies on arms exports and conventional weapons proliferation: Globalization and the U.S. Defense Department in the transnational mergers of defense corporations.

The recommendation to welcome transnational mergers addresses an urgent issue. A few large companies already dominate the American arms industry, and Europe's defense firms are rapidly consolidating as well. A single company was created when British Aerospace acquired General Electric's Marconi Electronic Systems, and it now monopolizes the U.K. defense industry

The pursuit of scale-based cost savings is usually the biggest driver for transnational mergers and acquisitions.

Economies of scale is a practical concept that may explain real world phenomena such as patterns of international trade, the number of firms in a market, and how firms get "too big to fail." The exploitation of economies of scale helps explain why companies grow large in some industries. It is also a justification for free trade policies, since some economies of scale may require a larger market than is possible within a particular country — for example, it would not be efficient for Liechtenstein to have its own car maker, if they would only sell to their local market. A lone car maker may be profitable, however, if they export cars to global markets in addition to selling to the local market. Economies of scale also play a role in a "natural monopoly."

But American corporations don't just export products, they've been exporting the factories to create their products, thus cutting domestic jobs for cheaper labor abroad, and saving on the cost of transport as well.

"Pentagon Seeks Mega-Mergers Between International Arms Corporations" - A United States government task force has released its final report to the public recommending globalization of the U.S. defense industry, even if it results in proliferation of conventional weapons.

The Defense Science Board’s Task Force on Globalization and Security (DSB) is a 27-member appointed board, composed mostly of Department of Defense and private industry representatives (i.g. Lockheed Martin, Northrop Grumman and Boeing). It encourages the Pentagon to facilitate transnational mergers of defense corporations in order to avoid eventual conflicts with European countries over global arms market shares.

Overall, the DSB task force advocates reducing Department of Defense’s role in controlling arms exports, and holds little or no confidence in multilateral arms control agreements. The DSB recommends that the Pentagon automatically allow the export of military equipment, except when the United States is the sole possessor of the technology.

READ: America's Hottest Export: Weapons - By Mina Kimes - February 24, 2011 - CNN (No escape from outsourcing).

Defense board sounds louder alarm about foreign software development - Defense relies heavily on commercial off-the-shelf and custom-built software developed in countries such as India, China and Russia, so it can quickly and cheaply take advantage of the latest advances designed for global markets, rather than relying solely on U.S. developers.

But software developed in foreign countries and used by the Defense Department and other agencies puts federal information systems at serious risk of being hacked and compromised, according to a recent report issued by Defense's top advisory board.

The report (Mission Impact of Foreign Influence on DoD Software) by a Defense Science Board (DSB) task force, warns that "globalization of software development where some U.S. adversaries are writing the code that [Defense] will depend upon in war creates a rich opportunity to damage or destroy elements of the war-fighter's capability."

A Thorough Analysis from Stanford University: THE U.S. DEFENSE INDUSTRY AND ARMS SALES

November 2011 - Lockheed Martin, Northrop Grumman and Boeing - BOGUS PARTS! - "Counterfeit goods are a clear and present danger and a threat to our troops. There is a flood of counterfeits and it is putting our military men and women at risk and costing us a fortune."

Confronting the Nation's Fiscal Policy Challenges

Pages: 50
Report Date: 13 Sep 2011
Full Report - Number A284945

The federal government is confronting significant and fundamental budgetary challenges. If current policies are continued in coming years, the aging of the population and the rising cost of health care will boost federal spending, as a share of the economy, well above the amount of revenues that the federal government has collected in the past. As a result, putting the federal budget on a sustainable path will require significant changes in spending policies, tax policies, or both. The task of addressing those formidable challenges is complicated by the weakness of the economy and the large numbers of unemployed workers, empty houses, and underused factories and offices. Changes that might be made to federal spending or tax policies could have a substantial impact on the pace of economic recovery during the next few years as well as on the nation's output and people's income over the longer term.

CBO's 2011 Long-Term Budget Outlook

Pages: 109
Report Date: JUN 2011
Full Report - Number A261545

This Congressional Budget Office (CBO) report presents the agency's projections of federal spending and revenues over the coming decades. Under current law, an aging population and rapidly rising health care costs will sharply increase federal spending for health care programs and Social Security. If revenues remained at their historical average share of gross domestic product (GDP), such spending growth would cause federal debt to grow to unsustainable levels. If policymakers are to put the federal government on a sustainable budgetary path, they will need to increase revenues substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches. In keeping with CBO's mandate to provide objective, impartial analysis, this report makes no recommendations.

Reducing the Deficit: Spending and Revenue Options

Authors: Peter Fontaine; Theresa Gullo; Holly Harvey; Tom Bradley; Kim Crawley; Jean Hearne; Jeffrey Holland; Sarah Jennings; Sam Papenfuss; CONGRESSIONAL BUDGET OFFICE (U S CONGRESS) WASHINGTON DC

Pages: 257
Report Date: MAR 2011
Full Report - Number A804545

The Congressional Budget Office (CBO) regularly issues a compendium of budget options to help inform federal lawmakers about the implications of possible policy choices. This volume--one of several reports that CBO produces regularly for the House and Senate Committees on the Budget--presents more than 100 options for altering federal spending and revenues. Nearly all of the options would reduce federal budget deficits. From 1983 to 1997, the reports in this series were titled Reducing the Deficit: Spending and Revenue Options. In 2000, at a time of budget surpluses, the title was changed to Budget Options. This volume returns to the earlier title because the budgetary context has shifted dramatically since 2000. The report begins with an introductory chapter that describes the current budgetary picture and the uses and limitations of this volume. Chapters 2 and 3 present options that would reduce mandatory and discretionary spending, respectively. Chapter 4 contains options that would increase revenues from various kinds of taxes and fees. The options discussed in this report stem from a variety of sources, including legislative proposals, various Administrations' budget proposals, Congressional staff, other government entities, and private groups. The options are intended to reflect a range of possibilities rather than to provide a ranking of priorities or a comprehensive list. The inclusion or exclusion of a particular policy change does not represent an endorsement or rejection by CBO. In keeping with CBO's mandate to provide objective, impartial analysis, this report makes no recommendations. Some previous reports in this series grouped spending options according to budget function (the 20 programmatic categories into which the government's activities are frequently divided).

* Storming Media is a private, independent reseller of Pentagon and other US federal government reports.

Research: The Joint Committee on Taxation: U.S. Congress

Military-Industrial Complex Speech, Dwight D. Eisenhower, 1961 - "We have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations. This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist."


  1. As an aside: The "VOW to Hire Heroes" amendment was not a separate bill, but instead added as an amendment to the "Withholding Repeal and Job Creation Act" (H.R. 674), which repeals a 3% withholding tax that was supposed to help the federal government crack down of government contractor fraud. Corrupt politicians favoring the corrupt corporations again.

  2. Stop reimbursing the costs of pensions and other retirement benefits at huge, and hugely profitable, defense contractors and the Department of Energy.

    Among the large companies receiving taxpayer reimbursements for pensions and in some cases retirement health care are Boeing, General Dynamics, Lockheed Martin and Raytheon. Lockheed Martin shows reimbursements of $3.45 billion over the last five years: $3.1 billion came from United States taxpayers. During that period, the company generated $21.8 billion in operating profits. As a percentage of these profits, Lockheed Martin’s reimbursements have averaged 16 percent over these years. In 2010, the government reimbursed Lockheed by $988 million, an amount equal to 24 percent of the company’s operating profit that year. For 2011, Lockheed expects a reimbursement of $900 million. At the end of last year, Lockheed’s pension was underfunded by $10.4 billion, according to generally accepted accounting principles. As Lockheed contributes money to make up for this shortfall, the government will reimburse it.


  3. Amanda Terkel, on a 21st Century Class War Profiteer:

    "Tom Donohue, the president and CEO of the U.S. Chamber of Commerce, made a record $4.7 million last year, at a time when the rest of the country was seeing high unemployment and falling wages. Donohue's pay package included a $3.6 million bonus. His compensation in 2010 was $1 million higher than it was in 2009, when he was the sixth-highest paid lobbyist in the country. In March, Donohue made headlines for saying that the compensation of public workers is 'over bloated' and their pensions are 'out of control.' Donohue's compensation was revealed in the Chamber's 990 tax forms, which became publicly available this week. The Chamber itself also did quite well in 2010, collecting a significant number of million-dollar donations."

  4. One Nation, Under Arms - by Todd S. Purdum

    The private papers of the late George F. Kennan: Military spending had become a national addiction. “We could not now break ourselves of this habit,” Kennan wrote, “without the most serious of withdrawal symptoms. Millions of people, in addition to those other millions that are in uniform, have become accustomed to deriving their livelihood from the military-industrial complex. Thousands of firms have become dependent on it, not to mention labor unions and communities.”

    American military spending accounts for 43 percent of all defense spending worldwide, 6 times the share of China, 12 times that of Russia. The U.S. Navy is larger than the next 13 navies combined. Overall, defense spending increased about 70 percent under George W. Bush.

    That does not include what is spent by related agencies, such as the Department of Homeland Security, or by the myriad intelligence services. Despite the winding down of the wars in Iraq and Afghanistan, and recent talk in Washington about reining in military spending, the trend shows every evidence of continuing. Last spring, the Pentagon identified some $178 billion in potential savings and efficiencies through fiscal year 2016, but then proposed to keep $100 billion of it and redirect it to other programs.

    The amorphous bogeyman of global terrorism has made the notion of significant adjustments in defense spending off limits. Officials who should know better—including Defense Secretary Leon Panetta, an old deficit hawk in his days as a congressman from California—warn of the dire consequences of potential cuts.


  5. Defense hawks like to insist that we should judge the Pentagon budget as a percentage of GDP. Do we need more embassies overseas just because our GDP has grown? Not really. National defense falls into this category. The Economist's Roger McShane is unimpressed with all the doom-mongering over proposed cuts to the Pentagon budget.

  6. A Republican plan to spare the Pentagon roughly $500 billion in spending cuts would shift the $500 billion in spending cuts from the Pentagon's budget and move them into other agencies budgets.

  7. Dow member Boeing Co. reported that it and partner Northrop Grumman Corp. have received the development and sustainment contract for the US Missile Defense Agency for future work on the ground-based midcourse defense element of the US ballistic missile defense system. The contract is worth about $3.5 billion.

  8. HONOLULU, Dec 31 (Reuters) - U.S. President Barack Obama signed into law on Saturday a defense funding bill. Obama raised concerns in a statement about a requirement that he must notify Congress before sharing any classified U.S. ballistic defense missile information with Russia.

    The legislation authorized U.S. defense programs from war fighting to weapons building. That included $662 billion for defense in fiscal 2012, including the Pentagon's base budget and the war in Afghanistan.

    He followed in the footsteps of previous presidents in using a "signing statement" to indicate he disagreed with or planned to sidestep certain statues within a broad piece of legislation he did not want to veto....among them, one provision that allows the military to detain American citizens without due process if they are suspected of terrorism.

  9. More Defense Money Does Not Mean More Defense: From 10 Pentagon insiders, retired military officers and specialists with over 400 years of defense experience.

  10. March 16, 2015: Chasm grows within G.O.P. over [Defense] Spending

    March 16, 2015: America remains Top Arms Seller to the World

    February 2015: Will Congress Pass a War Tax in 2015? (To fight ISIS)