[Congressional Record Volume 152, Number 61 (Wednesday, May 17, 2006)]
[Senate]
[Page S4698]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CRAIG:
  S. 2821. A bill to repeal the imposition of withholding on certain 
payments made to vendors by government entities; to the Committee on 
Finance.
  Mr. CRAIG. Mr. President, I rise to introduce S. 2821, the 
Withholding Tax Relief Act of 2006. Today, President Bush signed into 
law H.R. 4297, the Tax Increase Prevention and Reconciliation Act of 
2005, and this afternoon, I am making good on a promise I made on the 
Senate floor last week--to repeal the expanded withholding tax 
contained in H.R. 4297 to ensure that the bill does what its title 
claims, that is, prevents tax Increases.
  Americans have been asking for tax relief. Congress answered this 
call, in part, when it passed the Tax Increase Prevention and 
Reconciliation Act of 2005. The lower taxes on capital gains and 
dividends--and the higher alternative minimum tax exemption amounts--
contained in H.R. 4297 will assist small businesses, encourage the kind 
of investment that creates jobs and makes our economy grow, and ensure 
fairer tax treatment for middle-income families who would otherwise be 
left footing the bill for a tax intended for the wealthy.
  Alongside these tax relief provisions, however, conferees inserted a 
sweeping new withholding requirement that will raise taxes by nearly $7 
billion. This bill seems to have a history of that. When the original 
tax reconciliation bill came before the Senate, it contained a windfall 
profits tax provision that would have imposed an additional $4.923 
billion tax on the energy industry. I voted against it because the bill 
that was supposed to provide tax relief actually raised taxes. Although 
the conferees stripped this provision in conference, they replaced it 
with an even bigger tax hike--section 511's expanded withholding 
requirement.
  Section 511 of H.R. 4297 imposes a new mandatory 3 percent 
withholding requirement on all payments for goods and services made to 
Federal, State, and local contractors. The provision, which is the 
largest revenue raiser in the bill, represents a significant shift in 
U.S. tax policy.
  Withholding has not always been around. Despite predominant public 
opposition, Congress enacted mandatory withholding on Federal income 
tax in 1943 in order to fund World War II. As a result, tax collections 
jumped from $7.3 billion in 1939 to $43 billion in 1945. That is an 
increase of $35.7 billion in just 4 years. In congressional hearings on 
the issue, Congressmen spoke candidly of the revenues that needed to be 
``fried out of the taxpayers.'' There was no doubt in the minds of 
lawmakers that the result of withholding would be an increase in the 
tax burden on the public.
  Congress sought to expand withholding to dividends and interest in 
1982, and public opposition was so profound that it was repealed 1 year 
later. Now, proponents of section 511's expanded withholding 
requirement say that it is necessary to close a ``tax loophole'' that 
allows taxpayers to avoid their tax obligations. There is no such 
``loophole''--the Internal Revenue Service, IRS, has simply failed to 
do its job of collecting.
  Information-reporting requirements are already in place to assist the 
IRS in its collection duties. Government entities are required to make 
an information return, reporting payments to corporations as well as 
individuals. Moreover, every head of every Federal executive agency 
that enters into contracts must file an information return reporting 
the contractor's name, address, date of contract action, amount to be 
paid to the contractor, and other information. Expanding withholding 
would now not only have the Federal Government spend taxpayers' 
dollars, but it would make taxpayers bear the burden and costs of 
collecting them, too.
  The costs of section 511 are high--so high, in fact, that the 
Congressional Budget Office said that the provision constitutes an 
unfunded mandate on the State and local governments, exceeding the 
annual threshold established in the Unfunded Mandates Reform Act. The 
provision will also cause the cost of doing business to go up. A 3-
percent withholding on multibillion dollar contracts--for as long as 15 
months, held interest-free--will affect cash flows, investment, and 
cause businesses to raise prices in order to make up for losses, 
thereby putting them at a significant competitive disadvantage. 
Consider the Federal contract totals for Idaho and California alone. In 
fiscal year 2004, Idaho's nondefense contracts totaled $1.1 billion, 
and in fiscal year 2005, the State's defense contracts added up to $154 
million. In fiscal year 2004, California's nondefense contracts totaled 
$9.4 billion, and in fiscal year 2005, the State had $30.9 billion in 
defense contracts.
  The bill that I am introducing today, the Withholding Tax Relief Act 
of 2006, will repeal the $7 billion withholding tax contained in H.R. 
4297. Tax relief should not be coupled with tax increases, and I will 
continue to work to give more meaning to the phrase in the bill's 
title, ``Tax Increase Prevention.'' This bill is a first step. I urge 
my colleagues to join me in support of this legislation.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 2821

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Withholding Tax Relief Act 
     of 2006''.

     SEC. 2. REPEAL OF IMPOSITION OF WITHHOLDING ON CERTAIN 
                   PAYMENTS MADE TO VENDORS BY GOVERNMENT 
                   ENTITIES.

       The amendment made by section 511 of the Tax Increase 
     Prevention and Reconciliation Act of 2005 is repealed and the 
     Internal Revenue Code of 1986 shall be applied as if such 
     amendment had never been enacted.
                                 ______