[Congressional Record Volume 153, Number 38 (Tuesday, March 6, 2007)]
[Senate]
[Pages S2713-S2714]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CRAIG:
  S. 777. 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, today I am reintroducing the Withholding 
Tax Relief Act of 2007, which would repeal Section 511 of the Tax 
Increase Prevention and Reconciliation Act of 2005.
  Last year, Congress answered Americans' calls for tax relief 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 the legislation assisted 
small businesses, encouraged the kind of investment that creates jobs 
and makes our economy grow, and ensured fairer tax treatment for 
middle-income families who would otherwise be left picking up the bill 
for a tax intended for the wealthy.
  Alongside these essential tax relief provisions, however, conferees 
quietly inserted Section 511, a last-minute $7 billion tax penalty on 
government contractors, into the bill. Thus, the bill, whose aim was 
``tax increase prevention,'' actually raised taxes. On the same day the 
President signed the Tax Increase Prevention and Reconciliation Act 
into law, I introduced the Withholding Tax Relief Act of 2006 and made 
good on my promise to work to repeal Section 511. Today, I am renewing 
that promise.
  Section 511--the largest revenue-raiser by far in the Tax Increase 
Prevention and Reconciliation Act--imposes a sweeping new 3 percent tax 
withholding on all government payments for products and services made 
by the Federal Government, State governments, and local governments 
with expenditures of $100 million or more. It affects payments for 
goods and services under government contracts and payments to any 
person for a service or product provided to a government entity--for 
example, Medicare and certain grants--beginning in 2011.
  Section 511 will not close the tax gap--or the difference between 
what American taxpayers owe and what they actually pay--as proponents 
of the provision argue. Section 511 is estimated to ``increase'' 
revenue by $7 billion from 2011 to 2015, but raises $6 billion of that 
amount due solely to accelerated tax receipts and not an actual revenue 
increase from tax compliance. It generates only $215 million in 2012 
and increases slightly in each of the three years thereafter hardly the 
$290 billion annual tax gap the IRS estimates. Further, Section 511 is 
based on revenues from government payments with no relationship to a 
company's taxable income or tax liability. Section 511 hurts honest 
taxpaying businesses without providing any additional enforcement 
mechanisms for tax delinquents.
  Section 511's costs to businesses are substantial. Although 
proponents of Section 511 call the 3 percent withholding rate ``low'' 
and ``conservative,'' in most cases, businesses make substantially less 
than 3 percent profit on their contracts and sometimes, turn no profit 
at all. Section 511 will effectively withhold entire paychecks--
interest free--thereby impeding the cash

[[Page S2714]]

flow of small businesses, eliminating funds that can be used for 
reinvestment in the business, and forcing companies to pass on the 
added costs to customers or finance the additional amount.
  Section 511 will also impose significant administrative costs on the 
Federal, State, and local governments--costs so high, in fact, that the 
Congressional Budget Office (CBO) said the provision constitutes an 
unfunded mandate on the state and local governments. The projected 
costs of Section 511, says CBO, will far exceed the allowable $50 
million annual threshold.
  More than the costs to government, though, Section 511 stands to 
negatively impact nearly every sector of the economy--from health care 
and technology to building and transportation--and there is already 
talk of expanding the provision's reach and accelerating its effective 
date. What there wasn't talk of, though--at the inception of Section 
511--was the provision itself. Congress never debated the merits of an 
expanded withholding requirement--as a revenue-raiser or as a way to 
narrow the tax gap--in a committee or on either chamber's floor. If it 
had, Congress would have realized that it does neither of these things 
well. Section 511 is the start of years of bad tax policy. We can do 
better than this, and I urge my colleagues to join me in working to 
repeal this unfair tax penalty.
  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. 777

       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 2007''.

     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.
                                 ______