[Congressional Record Volume 155, Number 12 (Wednesday, January 21, 2009)]
[Senate]
[Pages S721-S722]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SPECTER (for himself, Mr. Vitter, Mr. Inhofe, Mr. Isakson, 
        Mr. Voinovich, Mr. Roberts, and Mr. Chambliss):
  S. 292. A bill to repeal the imposition of withholding on certain 
payments made to vendors by government entities; to the Committee on 
Finance.
  Mr. SPECTER. Mr. President, I have sought recognition to introduce 
the Withholding Tax Relief Act of 2009, which would repeal Section 511 
of the Tax Increase Prevention and Reconciliation Act of 2005. Section 
511 will require a 3 percent withholding on all Government contracts 
beginning on January 1, 2011.
  This legislation was sponsored in the 110th Congress by Senator Larry 
Craig, S. 777, and with his retirement, I have decided to continue to 
press for its passage to protect small businesses, contractors, and 
State and local governments who will be unfairly burdened by this 
onerous provision.
  In 2006 Congress enacted tax relief on capital gains, dividends, and 
the Alternative Minimum Tax, AMT, as part of the Tax Increase 
Prevention and Reconciliation Act of 2005. These provisions provide 
important incentives for small businesses by encouraging investment 
that can lead to job creation and economic growth. At the same time, 
the Section 511 withholding tax provision was inserted at the last 
minute by conferees as a revenue raiser. As a result, the legislation 
which was intended to provide tax relief ended up containing a $7 
billion tax penalty on Government contractors.
  If no action is taken to repeal this provision, Section 511 will 
institute a 3 percent tax withholding on all local, State, and Federal 
Government payments, effective on January 1, 2011. This will apply to 
Governments with expenditures of $100 million or more, and will affect 
payments on Government contracts as well as other payments, such as 
Medicare, grants, and farm payments. Impacted firms will ultimately get 
a refund when they file their tax return if the amount withheld is in 
excess of what is actually owed.
  The proponents of Section 511 argue that it will be an effective tool 
to close the tax gap--the difference between what American taxpayers 
owe and what they actually pay. However, an examination of the 
mechanics of the provision support a different conclusion. At the time 
of passage, Section 511 was estimated to increase revenue by $7 billion 
from 2011 to 2015. However, $6 billion of that amount is attained 
solely because of the initial collection on contracts in 2011, not 
because of an actual revenue increase from increased

[[Page S722]]

tax compliance. Estimates show that Section 511 will only generate $215 
million in 2012 and increases slightly in each of the 3 years 
thereafter.
  While I support efforts to close the tax gap, those efforts must be 
weighed on a case-by-case basis against the unintended harm that is 
done to those impacted. For example, the 3 percent figure is an 
arbitrary amount and does not take into account the company's taxable 
income or tax liability. As a result, an honest taxpaying contractor in 
a loss year could be without access to the withheld capital for a 
significant period of time, only to see it returned when it files its 
taxes. Many of these firms do not have extra capital on hand to get by 
and, because some file yearly returns as opposed to quarterly returns, 
will not receive a refund on the amount withheld for 12 to 18 months. 
In many cases, businesses operate with a profit margin that is smaller 
than 3 percent of the contract; and in some cases, there is no profit 
at all. In these cases, Section 511 will effectively withhold entire 
paychecks--interest free--thereby impeding the cash 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 who are required to create, or 
expand, collections staffing to comply. The Congressional Budget 
Office, CBO, said the provision constitutes an unfunded mandate on the 
State and local governments. According to CBO, the projected costs of 
Section 511 will exceed the $50 million unfunded mandate annual 
threshold. On a Federal level, there is evidence that the high cost of 
preparation is unnecessary. For example, the Department of Defense 
estimated that the costs to comply with the 3 percent withholding 
requirement could be in excess of $17 billion over the first 5 years, 
which is more than any estimated revenue gains.
  There is strong support from a number of stakeholders for repeal of 
the Withholding Tax requirement, including the Associated Builders and 
Contractors, U.S. Chamber of Commerce, National Association of 
Manufacturers, National Federation of Independent Business, and 
American Farm Bureau Federation.
  I am pleased that this legislation garnered the support of 260 
cosponsors in the House of Representatives, H.R. 1023, in the 110th 
Congress, with a broad mix of support from both parties. For example, 
cosponsors from the Pennsylvania delegation included Representatives 
Altmire, Brady, Carney, Doyle, English, Gerlach, Holden, Murphy, Pitts, 
Platts, Sestak, and Shuster. In the Senate, I will seek to build on the 
efforts of Senator Craig and the 15 other cosponsors, including myself.
  At the time of passage of the Tax Increase Prevention and 
Reconciliation Act of 2005, Congress had not adequately debated the 
merits of the withholding requirement in a committee hearing or with 
debate in either body. An issue of this magnitude deserves proper 
debate, and had that occurred, it is difficult to believe that Congress 
would have included Section 511. For these reasons, I urge my 
colleagues to support repeal of this unfair tax penalty.
  Mr. President, I ask unanimous consent that a list of supporters to 
this bill be provided in the Record.
  There being no objection, the material was ordered to be placed in 
the Record, as follows:

                Government Withholding Relief Coalition

       Aeronautical Repair Station Association; Aerospace 
     Industries Association; Air Conditioning Contractors of 
     America; Air Transport Association; America's Health 
     Insurance Plans; American Bankers Association; American 
     Concrete Pressure Pipe Association; American Congress on 
     Surveying and Mapping; American Council of Engineering 
     Companies; American Farm Bureau Federation; American Heath 
     Care Association; American Institute of Architects; American 
     Moving and Storage Association; American Nursery and 
     Landscape Association; American Road & Transportation 
     Builders Association; American Shipbuilding Association; 
     American Society of Civil Engineers; American Subcontractors 
     Association; American Supply Association; American Trucking 
     Associations.
       Associated Builders and Contractors; Associated Equipment 
     Distributors; Association of National Account Executives; 
     Business and Institutional Furniture Manufacturers 
     Association; Coalition for Government Procurement; Colorado 
     Motor Carriers Association; Computing Technology Industry 
     Association; Construction Contractors Association; 
     Construction Industry Round Table; Construction Management 
     Association of America; Contract Services Association; Design 
     Professionals Coalition; Edison Electric Institute; 
     Engineering & Utility Contractors Association; Federation of 
     American Hospitals; Financial Executives International's 
     Committee on Government Business; Financial Executives 
     International's Committee on Taxation; Finishing Contractors 
     Association; Gold Coast Hispanic Chamber of Commerce; 
     Independent Electrical Contractors, Inc.
       Information Technology Association of America; 
     International Council of Employers of Bricklayers and Allied 
     Craftworkers; International Foodservice Distributors 
     Association; Management Association for Private 
     Photogrammetric Surveyors; Mason Contractors Association 
     of America; Mechanical Contractors Association of America; 
     Messenger Courier Association of the Americas; Modular 
     Building Institute; National Association for Self-
     Employed; National Association of Credit Management; 
     National Association of Manufacturers; National 
     Association of Minority Contractors; National Beer 
     Wholesalers Association; National Burglar and Fire Alarm 
     Association; National Defense Industrial Association; 
     National Electrical Contractors Association; National 
     Federation of Independent Business; National Italian-
     American Business Association; National Precast Concrete 
     Association; National Office Products Alliance.
       National Roofing Contractors Association; National Small 
     Business Association; National Society of Professional 
     Engineers; National Society of Professional Surveyors; 
     National Utility Contractors Association; National Wooden 
     Pallet and Container Association; North Coast Builders 
     Exchange; Office Furniture Dealers Alliance; Oregon Trucking 
     Association; Plumbing-Heating-Cooling Contractors--National 
     Association; Printing Industries of America; Professional 
     Services Council; Regional Legislative Alliance of Ventura 
     and Santa Barbara Counties; Santa Rosa Chamber of Commerce; 
     Security Industry Association; Sheet Metal and Air 
     Conditioning Contractors National Association, Inc.; Small 
     Business & Entrepreneurship Council; Small Business 
     Legislative Council; Textile Rental Services Association of 
     America; The Associated General Contractors of America.
       The Association of Union Constructors; The Distilled 
     Spirits Council of the U.S.; The Financial Services 
     Roundtable; U.S. Chamber of Commerce; United States Telecom 
     Association; Women Impacting Public Policy.
                                 ______