Support the Withholding Tax Relief Act of 2007Written By: CONGRESSMAN KENDRICK B. MEEK (D-FL)
Article Date: 10-01-2007
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The cost of doing business could increase without your support.
Editor's Note: In 2006, AED's Washington Office began inviting leading members of Congress from both political parties to contribute articles to CED magazine. The goal: let AED members hear directly from our nation's leaders about key issues without any of the usual media filters. This month, Rep. Kendrick Meek (D-FL) talks about one of AED's top legislative priorities: repealing the new withholding tax on government contractors. To contact Congress about this issue, visit www.AEDaction.org. I hope all AED members can rally around H.R. 1023, a bill I have introduced to repeal the new withholding tax on government contractors created by section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA).
TIPRA section 511 mandates that, starting in 2011, federal, state and local governments with over $100 million in annual procurement withhold 3 percent from payments made for goods and services, including such things as Medicare payments to hospitals and physicians, and grants to for-profit social service organizations.
The language - which did not appear in either the House- or Senate passed version of TIPRA, but which was added at the last minute in conference was used as a potential revenue-raiser in the conference agreement, allegedly to fund the Rural Schools Initiative. It has also been suggested that
the language supports initiatives to lessen the tax gap by withholding funds from good and bad corporate players alike.
Section 511 of TIPRA presents significant challenges for small businesses, and state and local governments. The withholding provision will impede the cash-flow of small entities, presenting another obstacle to their success. For instance, if a contract generates little or no profit the additional withholding presents serious cash management challenges.
State and local governments and public officials are extremely concerned about the impact this provision will have on competitive bidding for government contracts and on the price that state and local governments will pay for purchases of goods and services. Many larger companies will simply pass the cost of the withholding tax to their government client or down to their subcontractors.
All this could negatively impact equipment distributors around the country.
Section 511 of TIPRA will also have unintended administrative costs on all levels of government required to collect the tax. The withholding requirement at a minimum will require changes to be made to the accounting methods and software used by governments. For example, Miami-Dade County estimates it will cost in excess of $27 million to implement this new requirement.
The Joint Committee on Taxation (JCT) stated last year that implementation of section 511 would result in nearly $7 billion of raised revenue. But most of its $7 billion in revenue (roughly $6 billion worth) occurs in the first year and is due only to the acceleration of taxes in the transition year, the vast majority of which will be refunded in the following year. After that first year, the JCT estimated that the annual increase in federal revenue will be between $215 million and $300 million per year, an amount that will be dwarfed by the costs to local government to implement the requirement.
Like most, I strongly believe that Congress should ferret out noncompliance to the best of our ability. Still, efforts to bridge the "tax gap" should be weighed first against the real effects of new compliance burdens on honest taxpayers. Regrettably, the 3 percent withholding provision paints all taxpayers that provide goods or services to governments as would-be criminals, which could both drive up the cost of doing business and increase the price of goods and services purchased by governments.
H.R. 1023 is widely supported by both the public and private sectors, with well over 50 business and trade organizations (including AED) advocating on the bill's behalf and virtually every governmental association and agency, including the Small Business Administration, supporting it as well. The legislation currently has 200 Congressional co-sponsors, and that list grows daily as members are informed about the issue and how it will affect their local communities and the constituencies they serve.
I encourage AED members to rally around this issue by lobbying and calling your members of Congress. Tell them that you support H.R. 1023.
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